Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-01336/USCOURTS-caDC-98-01336-0/pdf.json

Parties Involved:
Niagara Telephone Company
Petitioner
United States Postal Service
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 14, 1999 Decided July 23, 1999

No. 98-1310

"Complex"

United Parcel Service, Inc.,

Petitioner

v.

United States Postal Service,

Respondent

Alliance of Nonprofit Mailers, et al.,

Intervenors

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No. 98-1320

Alliance of Nonprofit Mailers and

Coalition of Religious Press Associations,

Petitioners

v.

United States Postal Service,

Respondent

United Parcel Service, Inc.,

Intervenor

No. 98-1336

Niagara Telephone Company,

Petitioner

v.

United States Postal Service,

Respondent

On Petitions for Review of an Order of the

United States Postal Service

David M. Levy argued the cause for the Alliance of Nonprofit Mailers and Coalition of Religious Press Associations.

John E. McKeever argued the cause for United Parcel

Service, Inc.

Timothy E. Welch argued the cause for Niagara Telephone

Company.

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Daniel J. Foucheaux, Jr., Counsel, United States Postal

Service, argued the cause for the United States Postal Service. Eric P. Koetting and Scott L. Reiter, Attorneys, United

States Postal Service, were on brief.

Dana T. Ackerly, II, John M. Burzio, Thomas W.

McLaughlin, Ian Volner, David C. Todd, Timothy J. May

and Mark L. Pelesh were on brief for the Advertising Mail

Marketing Association, et al. David L. Meyer, N. Frank

Wiggins and Jeffrey J. Lopez entered appearances.

William J. Olson and John S. Miles were on brief for the

Association of Priority Mail Users, Inc., et al.

Before: Ginsburg, Henderson and Rogers, Circuit Judges.

Opinion for the Court filed Per Curiam.

Per Curiam: The petitioners raise five challenges to the

May 11, 1998 Opinion and Recommended Decision of the

United States Postal Rate Commission (Commission), as approved by the United State Postal Service Board of Governors (Governors) on June 29, 1998. For the reasons set out

below, we reject each of the challenges and deny the petitions

for review.

I. Background

Under the Postal Reorganization Act (Act), "the Governors

are authorized to establish reasonable and equitable classes of

mail and reasonable and equitable rates of postage and fees

for postal services" subject to the over-all "break even"

limitation that "[p]ostal rates and fees shall provide sufficient

revenues so that the total estimated income and appropriations to the Postal Service will equal as nearly as practicable

total estimated costs of the Postal Service." 39 U.S.C. s 3621

(1994). The United States Postal Service (Postal Service,

Service or USPS) initiates a ratemaking proceeding by requesting that the Commission "submit a recommended decision on changes in a rate or rates of postage or in a fee or

fees for postal services." Id. s 3622(a).

The Commission is then required to

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make a recommended decision on the request for

changes in rates or fees in each class of mail or type of

service in accordance with the policies of this title and

the following factors:

(1) the establishment and maintenance of a fair and

equitable schedule;

(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;

(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;

(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;

(5) the available alternative means of sending and

receiving letters and other mail matter at reasonable

costs;

(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;

(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;

(8) the educational, cultural, scientific, and informational value to the recipient of mail matter; and

(9) such other factors as the Commission deems appropriate.

Id. s 3622(b).

The Commission has construed section 3622(b) to establish

a "two-tier approach to allocating the Postal Service's total

revenue requirement" under which the Commission "first

must determine the costs caused by ('attributable to') each

class of mail, s 3622(b)(3), and on that basis establish a rate

floor for each class" (the "attributable" costs) and "then must

'reasonably assign,' see s 3622(b)(3), the remaining costs to

the various classes of mail on the basis of the other factors set

forth in s 3622(b)" (the "institutional" costs). National Ass'n

of Greeting Card Publishers v. USPS, 462 U.S. 810, 814-15

(1983). The Commission then issues its recommended decision setting rates in accordance with the combined attributable and institutional costs for each class of mail and with the

statutory mandate that the Postal Service's rates and fees

"equal as nearly as practicable total estimated costs of the

Postal Service," 39 U.S.C. s 3621 (1994). Upon receiving the

Commission's decision, the Governors "may approve, allow

under protest, reject, or modify that decision." Id.

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s 3625(a).1

The Commission issued its Opinion and Recommended

Decision allocating attributable and institutional costs for

each class of mail on May 11, 1998 (PRC Op. R97-1). See

Joint Appendix (JA) vol. ii. On June 29, 1998 the Governors

issued their decision accepting the Commission's rates with

"minimal exceptions." See JA vol. i. 708. We address below

the petitioners' challenges to the Commission's decision as

accepted by the Governors.

II. DISCUSSION

As noted above, the petitioners challenge the Commission's

ratemaking decision on five grounds. We examine each

ground separately.

A. The Overall Rate Increase

1.

During the three years (1995-1997) since its last rate

increase in Docket No. R94-1, the Postal Service has experienced revenue surpluses after decades of deficits. The Service feared, however, that its net income would be insufficient

__________

1 For a more detailed exegesis of the statutory scheme, see Mail

Order Ass'n of Am. v. USPS, 2 F.3d 408, 413-16 (D.C. Cir. 1993).

to cover planned increases in capital spending on several

management-initiated projects designed to improve the Postal

Service's performance and infrastructure. The Service initially estimated that its total revenue requirement for Fiscal

Year 1998 would be $61.6 billion, including $60.564 billion in

incurred costs, $605.6 million for a one-percent contingency

fund, and $446.9 million to recover one-ninth of the Service's

$4.022 billion in accumulated debt. On this basis, it projected

that it would need over $2.4 billion in additional revenue.

The Service filed its request with the Commission in July

1997, based on data from FY 1996, using 1998 as a "test

year"--a year that is to be "representative of the period for

which the proposed rates are to be in effect." PRC Op.

R97-1 at 12; see also 39 C.F.R. s 3001.54(f)(2) (1998).

While the request was pending before the Commission,

subsequent data indicated that the Postal Service's original

revenue estimates had been overly pessimistic. For example,

although it had initially projected a surplus of only $636

million for 1997, in fact the Service received a net income of

$1.264 billion. In addition, although it originally projected a

$1.4 billion shortfall in revenues for FY 1998,2 in the first

seven accounting periods of FY 1998, the Service received a

$1.36 billion net income and would have to lose $2.6 billion

over the remainder of the year to experience the initial

estimated losses. As a result of these discrepancies, the

Commission took the apparently unusual step of asking the

Governors to provide updated estimates for FY 1998 based on

1997 actual results; although this request would delay the

proceeding, the Commission observed that "no pressing need

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for new rates" existed at the time. The Governors declined

the Commission's request, rejecting an extension of the tenmonth deadline and stating that they did not wish to "comment ... on the state of the evidentiary record" and that the

Governors could use their discretion as to the timing of

implementing rates "to provide for the best transition to new

rates."

__________

2 The Commission later identified this figure as $1.2 billion,

without explaining the discrepancy.

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After it became apparent that its original revenue estimates were overly pessimistic, the Postal Service reported to

the Commission that it would face more costs than it had

initially predicted. Specifically, it requested a new contingency figure of 1.5% instead of 1%, noting that in prior years the

figure had been as high a 3.5%. In addition, the Service

predicted that it would need $300 million more than it had

initially requested for discretionary programs, such as automated data processing. The Commission rejected what it

viewed as attempts to avoid the full impact of the Service's

bright economic situation, labeling the new 1.5% contingency

number "a plug figure" used by the Service to counterbalance

the decrease in the size of its contingency fund in light of

1997's actual data. Further, the Commission dismissed as

"speculative" the Postal Service's claims that it would spend

even more money than it had initially projected in FY 1998,

even though it continued "to spend significantly less than its

rate case forecasts" during the first half of the test year.

The Commission pointed to a Postal Service document--

inadvertently included as evidence and initially disavowed by

the Service as inauthentic--that identified the Service's updating "strategy" as "provid[ing] updated information on cost

increases to offset the decreases" resulting from 1997's actual

figures. The Commission found that although the document

"may not demonstrate an intent to mislead.... it indicates

that the Service was looking for potential cost increases."

The Commission therefore rejected the Service's effort to

increase its original estimate by $362 million. As to the

initial spending program estimates, however, the Commission

observed that, despite having "serious doubts about the Postal Service's forecasts in the area of other programs expense,

... [the Commission] does not scrutinize the wisdom of

Postal Service spending plans." Lacking sufficient grounds

to reduce this initial estimate of other programs expenses, the

Commission reasoned that, "[w]hile a proportional amount of

spending has not occurred in the first half of the test year, no

party has presented evidence suggesting that the Postal

Service will not spend funds for any particular program

during the remainder of 1998." It rejected, however, the

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Postal Service's position that "it does not matter when the

money is spent because it will eventually be spent," on the

ground that it was "antithetical to the test year ratemaking

process."

In revising the revenue request, the Commission observed

that it could "not estimate the degree to which the error in

forecasting 1997 results will continue into the test year,

primarily because it lacks the Cost and Revenue Analysis for

1997 (CRA)," after the Governors declined to delay the

proceedings to allow time for final FY 1997 data to be

compiled. It did, however, adjust the Postal Service's original request based on the 1997 figures it had, with reductions

for corrections provided by the Postal Service ($67 million), a

cost-of-living adjustment ($511.1 million, the largest single

change), and corrections for cost reduction and other programs estimates ($101 million).3 It retained the 1% contingency figure and, in keeping with the Postal Service's nineyear amortization plan, it reduced by $69.9 million the amount

the Service could ascribe to prior year losses, or "one ninth of

the difference between actual and estimated 1997 profits."

The Commission noted that "[t]he nine year amortization

period is standard, having been used in Docket Nos. R80-1,

R84-1, R87-1, R90-1, and R94-1," and that "[t]he Service

still believes it is appropriate." These figures, combined with

attribution and miscellaneous adjustments adding $4 million

to the total revenue requirement, led the Commission to

reduce the proposed rate increase by approximately $745

million.

At the same time, in light of the break-even requirement,

39 U.S.C. s 3621, the Commission urged the Governors to

delay implementing the new rates "until additional revenues

are needed to offset actual (as opposed to planned) expenditures." In sum, despite the recent surpluses, the Commission

__________

3 The Governors criticized this last decrease of "assumed supervisor cost savings" as "based on one party's unsupported speculations

that such costs were overlooked." Despite this complaint, the

Governors elected not to challenge this reduction; nor do the

petitioners raise it as an issue.

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approved an increase of $1.6 billion in overall rates on the

ground that these changes "will provide added funds to

enable the Postal Service to proceed with its plans to spend

$5.6 billion on equipment and service enhancement programs

in the 1998 fiscal year."4

A month later, the Governors adopted most of the Commission's recommendations. See 39 U.S.C. s 3625. In their

view, "[t]he revenue requirement was driven in large part by

the need to fund specific management initiatives and programs, many of which have been approved by the Board of

Governors to maintain and improve service for the public, as

well as by the usual need to cover expenses and repay prior

years' losses." At the same time, they acknowledged that in

FY 1998 they expected a gain in net income. Although

criticizing the Commission's rejection of certain costs and the

1.5% contingency figure, the Governors accepted the revenue

requirement portion of the Commission's decision. They

added, however, that, under their Resolution No. 95-9,5 the

Postal Service could recover for prior years' losses

at a more rapid rate, if possible, than that based on the

amount included in the revenue requirement. Continued

surpluses above and beyond those anticipated will allow

for the complete restoration of equity in the near future,

obviating the need to include this provision in subsequent

revenue requirements, and thus relieving the ratepayers

of a burden they have carried for many years.

Finally, in light of comments by mail customers to the

Governors and the Commission's request of a delay, the

Governors postponed implementing the rate changes until

January 10, 1999. Among the factors influencing the delay

were the Service's current financial situation, as reflected in

the annual report for FY 1997 and reported expectations for

__________

4 This spending increase represented the first portion of a fiveyear plan to invest $17 billion in the Postal Service's operations.

5 Resolution 95-9, a policy statement by the Governors, provides

that the "Postal Service will plan for cumulative net income ... to

equal or exceed the cumulative prior years' loss recovery target."

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FY 1998, and the fact that January marked the four-year

anniversary of the last general rate increase. The Governors

also concluded that applying the increase in January was

"consistent with the Postal Service's goal for equity restoration through FY 1998, in accordance with Resolution No. 95-9

and the Commission's recommendation for the recovery of

prior years' losses."

2.

In 1970, Congress enacted the "break even" requirement,

see 39 U.S.C. s 3621, as part of the Postal Reorganization

Act, Pub. L. No. 91-375, s 3621, 84 Stat. 719, 760 (1970)

(codified as amended at 39 U.S.C. s 101, et seq. (1994)),

following years of deficits by the then-Post Office Department. See National Ass'n of Greeting Card Publishers v.

USPS, 607 F.2d 392, 425 (D.C. Cir. 1979) (NAGCP III); see

also H.R. Rep. No. 91-988 at 3, 6, 13 (1970). The House

Committee on Post Office and Civil Service explained that

"the 'break-even' requirement of H.R. 17070 represents a

commitment that the Postal Service no longer rely on massive

annual infusions of general revenues of the Treasury at the

taxpayers' expense." H.R. Rep. No. 91-1104 at 17 (1970);

see also H.R. Rep. No. 91-988 at 13. Even so, that version of

the bill did not contemplate the Postal Service becoming

"self-sustaining--[i.e.] eliminating the postal deficit"--until

January, 1978. H.R. Rep. No. 91-1104 at 10. The final

version of the legislation, however, replaced the 1978 target

date with a requirement that "revenue from rates and fees,

plus annual appropriations for public service, debt service,

and revenue foregone should cover full costs." H.R. Rep. No.

91-1363 at 87 (1970) (conference report).

Despite the restructuring of the postal system, however,

the Service continued to operate budget deficits in all but

nine of the 26 years from 1971, when it became an independent agency, to 1997. See PRC Op. R97-1, at i, 11; Postal

Rate Commission, Opinion & Recommended Decision, Docket

No. R94-1, at II-24 to II-26 (1994) ("PRC Op. R94-1"); see

also NAGCP III, 607 F.2d at 425, 431. As the Commission

observed in the 1994 rate case, "[w]hile reorganization led to

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improvements in the cumulative deficit trend, it has not lived

up to the expectations of break-even operations." PRC Op.

R94-1 at II-34. This problem began to change in the three

years following the 1994 rate case when the Service experienced "unprecedented operating surpluses totaling $4.6 billion." PRC Op. R97-1 at i.

The Service's improved fortunes, however, lie at the heart

of the Alliance's challenge to the overall rate increase. The

Alliance contends that the Governors' decision flies in the face

of evidence that the Service was operating at a surplus at the

time the Governors approved the Commission's recommended

rate increase and therefore the Governors' decision violated

the "break-even" requirement of s 3621. The Service responds that the Commission (and therefore the Governors,

who adopted the Commission's recommendation) carefully

considered its request, reducing the proposed increase when

new data became available, and that "[n]o party filed factual

evidence controverting the Postal Service's revenue requirement presentation."

The plain language of s 3621, that total estimated income

and expenses be "equal as nearly as practicable," suggests

that Congress did not contemplate the break-even provision

to require a strict dollar-for-dollar match when the Service

presents its budget proposal to the Commission. The legislative history also recognizes that income and costs could be

"approximately in balance" and that the Commission should

recommend a decision balancing the two "as nearly as possible." S. Rep. No. 91-912, at 14-15 (1970). The Senate

Committee on Post Office and Civil Services reported that the

Governors were to notify the Commission if estimated costs

and estimated income were "significantly different," at which

time they were to request a change in the rate structure. Id.

at 14.

The statutory language and the legislative history recognize that ratemaking inherently involves some degree of

imprecision and, as this court has previously observed, it is

not an exact science. See Association of Am. Publishers v.

Governors of the USPS, 485 F.2d 768, 773 (D.C. Cir. 1973).

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The Service makes projections about its costs and revenue

that may or may not come to pass; projections are no more

than educated guesses. The use of projections for future

costs and revenues necessarily will involve some imprecision

when actual data becomes available. Of course, the Service

must make its estimates in good faith. In addition, the

Commission has a duty to evaluate the Service's proposal

independently. See Mail Order Ass'n of Am. v. USPS, 2

F.3d 408, 422 (D.C. Cir. 1993). Nevertheless, the Postal

Service's request for a rate change "shapes the Commission's

power to recommend." Dow Jones & Co. v. USPS, 110 F.3d

80, 83 (D.C. Cir. 1997).

The Alliance's challenge focuses, therefore, on the Postal

Service's estimate of its costs, noting that even the Commission expressed some doubts as to whether the Postal Service

would spend all of the money in the test year that it initially

projected. The court has previously rejected efforts to define

the term "cost" under s 3621 too restrictively, lest we "clamp

the shackles of a narrow rule onto the Postmaster General's

attempt to return the Postal Service to financial stability."

NAGCP III, 607 F.2d at 428. Although the Service is not

free to define "total estimated costs" so broadly as to make

the term meaningless, the court accepts the Service's determination as to costs "unless it lies outside the range of

permissible choices contemplated by the statute." Id. at 430

(quoting Hardin v. Kentucky Utilities Co., 390 U.S. 1, 8

(1968)). As the Supreme Court observed in New York v.

United States, 331 U.S. 284, 328 (1947), "[t]he appraisal of

cost figures is itself a task for experts, since these costs

involve many estimates and assumptions and, unlike a problem in calculus, cannot be proved right or wrong. They are,

indeed, only guides to judgment." The Alliance does not

challenge the type of expenses the Service proposes to count

as costs, but only the amount of those expenses.

In reviewing the record, the court must determine whether

there was substantial evidence for the Commission to rely on

the Service's original cost estimates in calculating the revenue

required for the Service to break even. See 5 U.S.C.

s 706(2)(E) (1994); Mail Order Ass'n, 2 F.3d at 420. Such

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evidence need not be "overwhelming," and the agency "must

have latitude to draw permissible inferences from ... the

record." Mail Order Ass'n, 2 F.3d at 421. Here, the Commission noted, first, that the need for a revenue increase

arose from the Service's plans to increase capital spending to

$2.5 billion on ambitious management-initiated programs to

improve customer service. When data became available indicating that the Service's financial performance was better

than expected in 1997, the Commission adjusted the Service's

revenue requirements, while noting that the factors causing

1997's stellar performance might not continue into the test

year. It also rejected the Service's claim that its costs would

be even greater than it had initially projected. Thus, the

Commission did not, as the Alliance suggests, set rates without regard to actual data. By contrast, in West Ohio Gas v.

Public Utilities Comm'n of Ohio, 294 U.S. 79 (1935), the

agency "shut [its] eyes" when presented with actual revenue

figures for 1930 and 1931, instead relying on estimates based

on 1929 data. Id. at 81. Here, the Commission adjusted its

figures as new data became available and was not required to

delay indefinitely the ratemaking process until all 1997 data

had been compiled, particularly in light of its statutory obligation to make its recommendation within 10 months. See 39

U.S.C. s 3624(a), (c)(1).

Second, although expressing doubts about whether the

Service could actually spend all the money it initially planned

for during the test year, the Commission found that it had no

basis to reduce this estimate, observing that its role was not

to pass judgment on the wisdom of the Service's proposed

spending. See Governors of USPS v. United States Postal

Rate Comm'n, 654 F.2d 108, 115 (D.C. Cir. 1981). The

Service offered evidence that it had plans in place to make

sure its managers timely spent these funds, and it noted that

a number of contracts had already been signed. The Alliance

does not seek disallowance of any specific expenditure. Although the Alliance challenges the Service's claim that it

would in fact spend the millions of dollars during the test

year, reversing early fiscal year performance, it provided no

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sion could reasonably presume, therefore, that the Service's

initial estimates and managerial efforts reflected a good faith

forecast of its spending needs.6 See FTC v. Owens-Corning

Fiberglas Corp., 626 F.2d 966, 975 (D.C. Cir. 1980); cf. West

Ohio Gas v. Public Utilities Comm'n of Ohio, 294 U.S. 63, 72

(1935).

Because we conclude that the Commission's recommended

decision to approve a revenue increase was "based on such

relevant evidence as a reasonable mind might accept as

adequate to support [the] conclusion" that the Service would

spend its initial estimates on new programs during the test

year, making the rate increase necessary, see Mail Order

Ass'n, 2 F.3d at 420 (citations and internal quotation marks

omitted), we affirm the Governors' decision. The Governors

could reasonably rely on the Commission's conclusions. Although the Service's failure in the early part of the fiscal year

to keep pace with its initial spending projections might suggest an inability to meet its spending targets for the remainder of the test year, this is not the only conclusion reasonably

to be drawn from the evidence. Reviewing courts "may not

overturn an agency finding simply because evidence existed

supporting an alternative finding." Direct Marketing Ass'n

v. USPS, 778 F.2d 96, 108 (2d Cir. 1985) (quoting Newsweek,

Inc. v. USPS, 663 F.2d 1186, 1210 (2d Cir. 1981)). The

Service's witnesses testified, and the Commission accepted,

that a number of contracts for such spending had been signed

and that the Service was taking steps to ensure that managers would be accountable for spending the money in their

budgets on the new programs.7 These programs were consis-

__________

6 Although the Alliance makes much of the fact that the Postal

Service earned a $550 million net income during FY 1998 and $611

million during the first four months of FY 1999, these figures were

not available to the Commission and the Governors when they made

their respective decisions. See 39 U.S.C. s 3628 (1994); see also

Commercial Drapery Contractors, Inc. v. United States, 133 F.3d 1,

7 (D.C. Cir. 1998); Direct Marketing Ass'n v. USPS, 778 F.2d 96,

109 (2d Cir. 1985).

7 The Alliance is therefore mistaken when it contends that the

Service is engaging in post hoc rationalization by suggesting that

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tent with the Service's obligation to maintain and develop the

postal system and to improve its service to customers. See

generally 39 U.S.C. s 3621. The Alliance's requested relief,

complete "disallowance of the proposed rate increases in their

entirety," would seriously interfere with the Governors' determination that additional funds were needed to improve service, and hence the Commission could reasonably reject its

request. We also reject the notion that the Postal Service

could implement rates only once its profits were exhausted:

the Service can rely on the test-year estimates, so long as the

Commission has substantial evidence with which to support

those calculations. See Mail Order Ass'n, 2 F.3d at 420.

In light of the inherent mismatch that can occur when

using a test year and estimates to project revenue requirements, the Commission necessarily faces the prospect that

some of the data initially provided to it by the Service may

later prove to be inaccurate. The Commission considered the

data before it, rejected the Service's late-breaking spending

increase projections, and reduced the initial estimates based

on what data it had. Although the Commission requested a

three-month delay to allow time for the submission of updates

to its FY 1997 data, once the Governors rejected this request,

the Commission was within its discretion to proceed based on

the evidence before it and to decline to reopen the record and

thereby endanger its statutory obligation to complete the rate

proceeding within ten months. See 39 U.S.C. s 3624(c)(1);

see also Direct Marketing Ass'n, 778 F.2d at 107 (citing City

of San Antonio v. Civil Aeronautics Bd., 374 F.2d 326, 329

(D.C. Cir. 1967)). The Alliance acknowledges that the record

before the Commission need not be "continually" updated to

reflect the latest, most accurate data. Indeed, in enacting the

Postal Reorganization Act, Congress was concerned that

"protracted disputes over rates and classifications not block

the adequate flow of revenues to the Postal Service." Mail

Order Ass'n, 2 F.3d at 419 (citing H.R. Rep. No. 91-1104 at

19).

__________

the delays in spending at the beginning of the fiscal year were only

temporary. See SEC v. Chenery Corp., 332 U.S. 194, 196 (1947).

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The Alliance contends, however, that whatever evidence

was before the Commission, the Governors in effect admitted

that a rate increase in FY 1998 would violate the break-even

provision when they stated in their decision adopting the

Commission's recommendation a month later that "[i]n FY

1998, the Board once again expects the Postal Service to gain

a net income." This statement, divorced from any specific

data in the record to support it, is somewhat ambiguous, in

that it indicates nothing about the size of the expected

surplus or whether it would be more than the $19 million

surplus projected by the Commission for 1998 if the new

rates were implemented. Furthermore, the Governors made

this observation in the context of explaining why they were

delaying implementation of the rates until January 1999.

Hence, the statement is hardly a precise calculation of the

Service's revenue requirements based on evidence in the

record.8

B. Nonprofit Standard A Mail

The Alliance also challenges the Postal Service's increased

rate for "nonprofit Standard A mail,"9 arguing that the Ser-

__________

8 The Commission urged the Governors to delay implementing

the rates until the new revenues were actually needed "to offset

actual (as opposed to planned) expenditures." The Commission did

not, however, condition its recommendation of the rates upon the

Board's acceptance of a delay. Had the Commission required the

Service to delay rates until January, it would be making rates on

the basis of something other than the test year, in that it would be

acknowledging that the Service could not spend all the money it

proposed during the test year. Although the decision when to start

new rates is within the Governors' discretion, see Mail Order Ass'n,

2 F.3d at 419-20; see also 39 U.S.C. s 3625(f), we do not reach the

separate inquiry of whether the Commission could approve an

increase contingent upon the Governors' delaying its implementation until actual spending needs arise.

9 The Alliance describes this subclass as "the primary medium for

nonprofit organizations to raise funds and disseminate information."

Commercial Standard A mail, in contrast, is "the primary subclass

for commercial bulk advertising mail."

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vice improperly allocated costs. The Postal Service initially

proposed a rate increase of 11.3% for nonprofit Standard A

mail. Before the Commission, however, the Alliance's witness, John Haldi, came forward with evidence that part of the

increase in nonprofit costs resulted from a "mismatch" between two Postal Service methods for tracking nonprofit mail.

Specifically, Haldi testified that volume data collected through

the Revenue-Piece-Weight ("RPW") system might be out-ofsynch with cost data measured through the In Office Cost

System ("IOCS"), leading to the costs of nonprofit mail being

overstated. Due to changes in nonprofit mail eligibility requirements, some mail "bearing nonprofit indicia of postage"

were "entered at commercial rates or later charged back

postage based on commercial rates." Haldi estimated that

7.85% of mail with nonprofit markings paid commercial rates

and that therefore 7.85% of total attributable costs for Standard A nonprofit mail should shift to commercial mail.

The Postal Service's rebuttal study challenged Haldi's findings. The Service conceded that the mismatch documented

by Haldi was possible, but it found that only 0.061% of

commercial mail had nonprofit indicia, with a net effect that

only $400,000, or 0.18%, of nonprofit costs should be assigned

to commercial costs. Given the small figure, the Postal

Service argued that no adjustment was necessary.

The Commission found that both surveys "are significantly

flawed and may not be relied upon for quantitative assessment." For example, one third of the responses in the Haldi

study came from one organization, the American Association

of Museums, while the Postal Service's study relied extensively upon the memories of its employees. A problem clearly

existed--"that some nonprofit mail may be correctly reported

in the RPW system as commercial mail, but recorded as

nonprofit in the IOCS system." But the Commission concluded that quantifying this problem presented a "greater challenge," and in the end determined "[a]fter examination of the

record evidence, including nonprofit mail volume, the Commission estimates that one percent of total nonprofit attributable costs should have been associated with Standard A

commercial mail." The resulting rate recommended for StanUSCA Case #98-1336 Document #451244 Filed: 07/23/1999 Page 17 of 32
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dard A Nonprofit Mail was an increase of 9.6%, which the

Governors adopted.

On appeal, the Alliance contends that the rate increase for

Nonprofit Standard A mail violates the requirements of

s 3626(a)(3), which provides that rates for this category of

mail include the "estimated costs attributable" to it plus an

additional markup, which for FY 1998 equaled 5/12 of the

commercial subclass markup.10 See 39 U.S.C.

s 3626(a)(3)(A)-(B) (1994). The statute defines "costs attributable" as "the direct and indirect postal costs attributable to

such class of mail or kind of mailer (excluding any other costs

of the Postal Service)." Id. s 3626(a)(2)(A). This language

parallels s 3622(b)(3), which requires "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." In the Alliance's view, because the cost

data used to create the nonprofit rate was "corrupted," and

the Postal Service had failed to provide sufficient evidence on

the extent of cost-shifting, the Commission had to reject the

rate increase or toll the deadline until the Postal Service

provided better data.11 Selecting the one-percent figure as a

__________

10 In 1993 Congress passed the Revenue Forgone Reform Act, as

part of the larger Treasury, Postal Service, and General Government Appropriations Act, 1994, Pub. L. No. 103-123, 107 Stat. 1226,

ss 701-708 (1993). This statute amended 39 U.S.C. s 3626(a),

phasing in a series of mark-ups based on year. See 107 Stat. at

1268. For fiscal years after 1998, the rate for nonprofit Standard A

mail was to "reflect one-half the markup of the comparable commercial subclass." PRC Op. 97-1, at 458; see also 39 U.S.C.

s 3626(a)(3)(B)(ii)(VI).

11 For support of this proposed delay, the Alliance cites 39 U.S.C.

s 3624(c)(2), which permits the Commission to extend the 10-month

deadline by one day for each day that the Postal Service has

unreasonably delayed a response to a lawful order by the Commission. The Postal Service responds that at no time did it fail to

comply with a specific Commission order. The Alliance contends,

however, that the Postal Service's failure "to provide adequate

documentation of the costs attributed to nonprofit Standard (A)

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compromise number between the competing parties' estimates did not constitute, the Alliance contends, reasoned

decision-making.

In examining the Commission's decision, context is significant. The Commission viewed the Service's proposed request

to be "the most technically complex" rate case ever presented

to it. See PRC Op. R.97-1 at iii. Yet the statute required

the Commission to make its recommendations on the Service's request "no later than 10 months after receiving" it. 39

U.S.C. s 3624(a), (c)(1). To reach that point, the Commission

first had to conduct hearings to allow the Service, mail users,

and a Commission officer appointed to represent the general

public the opportunity to comment on the Service's request.

Id. s 3624(a). Congress required that the Commission reach

its decision promptly in recognition that "the Postal Service is

a labor-intensive organization," S. Rep. No. 91-912, at 16,

which needed sufficient income to operate efficiently, see H.

Rep. 1104 at 19, and therefore Congress implicitly anticipated

that the Commission would have to make its recommendations based on the data that might suffer from analytical

flaws or, with time, prove inaccurate.

Consequently, although the Commission has an obligation

to explain its reasoning and to support its position with

substantial evidence, see Mail Order Ass'n, 2 F.3d at 420;

Direct Marketing Ass'n, 778 F.2d at 100, it will not always be

possible for it to provide an extended explanation of every

issue addressed in its recommendation, particularly an issue

raised relatively late in the proceedings. So viewed, the

Commission's decision is sufficient if the court can discern the

__________

mail" violated the Service's obligation to provide complete documentation on cost attribution for individual classes of mail. Reply Br.

at 15 n.7 (citing 39 C.F.R. s 3001.54(b)). Despite the Alliance's

assertions, the statute provides that the delay may be imposed

when "the Commission determines that the Postal Service has

unreasonably delayed consideration." See 39 U.S.C. s 3624(c)(2)

(emphasis added). Although the Commission was critical of the

Service's failure to "expend significant efforts to evaluate the matter until after [being] directed ... to do so," the Commission made

no such determination on this issue.

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path that the Commission followed in reaching its one-percent

figure. See Motor Vehicle Mfrs. Ass'n of the United States v.

State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)

(quoting Bowman Transp., Inc. v. Arkansas-Best Freight

Sys., Inc., 419 U.S. 281, 286 (1974)); see also Greater Boston

Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970).

The Supreme Court has cautioned, moreover, that "[a]llocation of costs is not a matter for the slide-rule. It involves

judgment on a myriad of facts. It has no claim to an exact

science." National Ass'n of Greeting Card Publishers, 462

U.S. at 825 (quoting Colorado Interstate Co. v. FPC, 324 U.S.

581, 589 (1945)). Discussing postal rate cost allocation in the

context of s 3622(b)(3), the Court observed that "Congress

did not dictate a specific method for identifying causal relationships between costs and classes of mail" and that the

Commission's interpretation of the statute, including the

method to choose to comply with s 3622(b)(3), was due deference. Id. at 826. The Court upheld the Commission's construction of the Postal Reorganization Act as establishing a

"two-tier ratesetting structure" to allocate costs, first identifying "all costs that in the judgment of the Rate Commission

are the consequence of providing a particular class of service"

and second "assign[ing] remaining costs reasonably on the

basis of the other eight factors set forth by s 3622(b)." Id. at

833-34. The Court concluded that "[t]he statute requires

attribution of any cost for which the source can be identified,

but leaves it to the Commissioners, in the first instance, to

decide which methods provide reasonable assurance that

costs are the result of providing one class of service." Id. at

833.

When an agency does not "entirely disregard two experts,

but [finds] each somewhat in error," the court has permitted

the agency to take "as its own solution a point somewhere

between the two expert figures. When neither of two suggested adjustments applied to inaccurate data is completely

satisfactory a rate-making body may fashion its own adjustments within reasonable limits." Association of Am. Publishers, 485 F.2d at 773. Accord Direct Marketing Ass'n, 778

F.2d at 102, 110-11. In Association of American Publishers,

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the Commission decided to split the difference between two

competing figures, observing that "[s]ince Solomon's day, to

split the difference or to come close thereto has been thought

wise, if only because it makes parties more likely to disclose

to tribunals the truth." 485 F.2d at 773. Here, the Commission elected a figure at the low-end of a narrow range,

between the Service's estimate of 0.18% and the Alliance's

estimate of 7.85%.

The dilemma for the Commission was to quantify the

extent of the mismatch between the two Service methods for

tracking nonprofit mail. Although the Alliance and the Service's surveys acknowledged some mismatch existed, surveydesign flaws made its impossible for the Commission to know

the exact amount of mismatching that had occurred. As in

Association of American Publishers, "[t]he only available

figures were inaccurate, but were susceptible of rough adjustment," id., because the Commission could reasonably assume

that the mismatch was no worse than the Alliance's estimate

of 7.85%, given its incentive to find the most favorable sample

possible,12 nor better than the Service's estimate of 0.18%,

given its interests in minimizing the problem so that its cost

allocation estimates would remain undisturbed.13 Viewing the

surveys, though flawed, to represent the outer limits of the

true nature of the mismatch, with 7.85% as the ceiling and

__________

12 The Alliance contended during oral argument that there might

have been a more biased sample of interested parties out there but

that it did not "have access to the whole universe of nonprofit

mailers." Even so, the survey itself attempted to elicit a favorable

response from those participants that the Alliance was able to

reach. Specifically, one version of the survey used by the Alliance

alerted participants that "the ongoing postal rate case litigation

before the Postal Rate Commission threatens to hit nonprofit

Standard A mailers with substantial increases ... as high as 15-

18%" and urged them to respond "[i]n order to best protect your

interests and the interests of your colleagues." Such language

could potentially discourage at least some respondents from replying if their own figures would not aid the nonprofit mailers' cause.

13 Indeed, the Service argued before the Commission that no

adjustment to nonprofit costs or rates was warranted.

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0.18% as the floor, the Commission, given time constraints,

could reasonably select a figure somewhere between that

range and choose a number at the low end of the range.

First, the results of the Alliance's survey were questionable

because the Alliance failed to show that they reflected the

experiences of non-profit mailers as a whole, particularly in

light of the fact that so many of the responses came from one

group.14 Second, the Commission expressed concern that the

survey relied on a volume growth rate figure that it had not

attempted to quantify. Third, although the Service's survey

suffered from flaws as well, in that it failed to consider a

source of volume (mail voluntarily entered at commercial

rates) that could not readily be quantified, and it relied in

part on the memory of Postal employees, the Commission

could still reasonably assume the mismatch problem was

relatively small in view of the lack of reliable evidence presented by the Alliance that the mismatch was significant

enough to warrant a major adjustment. Cf. Mail Order

Ass'n, 2 F.3d at 438. Had the Commission adopted the

Alliance's figure without having reliable evidence to back it

up, the Commission would be creating a solution to a problem

that may be relatively small, thereby unnecessarily penalizing

commercial subclasses and opening itself up to accusations of

arbitrary decision-making by subclasses negatively affected

by its "solution." Although the Commission must address a

petitioner's allegations of error in the Service's calculations,

the Commission need not assume that simply because an

__________

14 One-third of the Alliance's survey responses came from members of a single association, the American Association of Museums,

even though this group did not represent one-third of all non-profit

mailers. Two of the fundamental goals of designing a sample is to

"choos[e] a sample that reflects relevant characteristics of the

population, and [to] achiev[e] a certain level of precision for the

statistical results. A major influence on the precision of estimates

is the size of the sample." David W. Barnes & John M. Conley,

Statistical Evidence in Litigation 253 (1986). The validity of a

survey's results is undermined if the sample is not representative of

the population it purports to represent or is not selected in a

sufficiently random manner. See Frazier v. Consolidated Rail

Corp., 851 F.2d 1447, 1452 (D. C. Cir. 1988).

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objection is raised that a problem exists, when the petitioner

fails to provide reliable data to support its position. Here the

Commission's choice of the one-percent figure avoided penalizing the commercial subclasses, in that the small shift in

costs had almost no effect on their unit attributable cost, yet

it also took into account the Alliance's concern that nonprofit

mailers were being penalized with "unjustifiably high rates."

Admittedly, the choice of the one-percent figure (as opposed to some other point between 0.18% and 7.85%) is

somewhat mysterious, but the general path is clear enough.

The record indicated that a mismatch problem existed, but

that it might not be very large. Although with more time,

the Commission might have been able to get better information, see Association of Am. Publishers, 485 F.2d at 773, a

"judgmental approach" selecting a figure between these two

estimates, though favoring the low end of the spectrum, was

within the Commission's authority.

Direct Marketing Association, 779 F.2d 96, presents an

analogous situation. The Second Circuit upheld the Commission's recommendation of a four-cent discount for certain

presorted first class mail. Id. at 109. Finding fault with

both the Service's recommended three-cent discount and another witness' 4.5 cent figure, the Commission treated these

estimates as the outer range of possible discounts, and selected a figure in between the two. Id. at 110. The Commission

found the Service's estimate approach "novel" and "very

conservative," while the other witness' approach took into

account costs unrelated to presort savings. Id. In developing its own approach, based on the Service's Revenue and

Costs Analysis Report, the Commission noted that "[t]he

record does not contain sufficient information to develop a

more precise estimate." Id. at 110-11 (quoting PRC Op.

R84-1 at 368-69). Thus, as in the instant case, the Commission's approach was "discernable from the evidentiary record

upon which the recommendation [was] based." Id. at 111.

Schurz Communications, Inc. v. FCC, 982 F.2d 1043 (7th

Cir. 1992), is distinguishable. There, the Seventh Circuit

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criticized the Federal Communications Commission for

"throwing up [its] hands and splitting the difference," rather

than assessing who had the stronger case, when it enacted

new rules governing television syndication rights. Id. at

1050. The court concluded that the agency had overlooked

key evidence and ignored arguments that it previously had

accepted, id., while the Commission here considered the

evidence before it. San Antonio, Texas v. United States, 631

F.2d 831 (D.C. Cir. 1980), clarified by 655 F.2d 1341 (D.C.

Cir. 1981), rev'd on other grounds sub nom. Burlington

Northern, Inc. v. United States, 459 U.S. 131 (1982), is also

distinguishable; the Interstate Commerce Commission offered no evidence or rationale for its "seven percent solution,"

and in fact its reasoning could support any percentage,

whether one or 99 percent. Id. at 852. Here, the Commission chose a percentage between two competing numbers,

representing a relatively small range, and although the Commission could have explained in greater detail why it chose

the low-end rather than the high-end of this range, its path

was reasonably clear.

C. Alaskan Parcel Post Air Costs

United Parcel Service (UPS) first challenges the amount of

the Commission's attributable costs for Parcel Post mail15 on

the ground that the Commission improperly excluded from

them a substantial portion of air transportation costs attributable to delivering Parcel Post mail to the remote Alaskan

"bush country." Because the Alaskan bush country is accessible only by air, all mail delivered there, including nonpreferential Parcel Post mail, which is usually carried by ground

transport, must be delivered by air, inflating considerably the

costs of delivering Parcel Post mail to the area. The Commission elected to attribute only a portion of the air delivery

__________

15 "Parcel Post includes mailable matter weighing 16 ounces or

more, but not exceeding 70 pounds in weight or 108 inches in

combined length and girth. In general, Parcel Post is used for

matter not eligible for mailing in any other Standard Mail subclass,

and consists primarily of merchandise." PRC Op. R97-1 at 476.

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costs to the Parcel Post subclass,16 however, concluding the

remainder was attributable to the Act's "universal service

obligation," which the Commission found to be the primary

cause of the air costs. See 39 U.S.C. s 101(a) (1994) (providing Postal Service "shall provide prompt, reliable, and efficient services to patrons in all areas and shall render postal

services to all communities") (emphasis added). Because the

statutory term "attributable" is ambiguous, we defer to the

Commission's reasonable interpretation of it and uphold its

consequent decision to attribute only a portion of Alaskan air

costs to the Parcel Post subclass.

As noted above, section 3622(b)(3) requires "that each class

of mail or type of mail service bear the direct and indirect

postal costs attributable to that class or type." Id.

s 3622(b)(3). Thus, "all costs that in the judgment of the

Rate Commission are the consequence of providing a particular class of service must be borne by that class." National

Ass'n of Greeting Card Publishers, 462 U.S. at 833. In this

ratemaking, as in past ratemakings, the Commission generally attributed costs under the "volume variability" methodology, which classifies a cost as "volume variable" and therefore

attributable to a particular class if the cost rises as the

volume of the particular class of mail rises. See Mail Order

Ass'n, 2 F.3d at 427 ("Traditionally, access costs have been

attributed to mail subclasses based on a 'volume variability'

formula that related 'access costs' to a particular subclass's

mail volume. Generally, the greater the volume of the subclass's mail, the greater the attributed access costs."); see

also Newsweek, Inc. v. USPS, 663 F.2d 1186, 1207-08 (2d Cir.

1981), aff'd and remanded, 462 U.S. 810 (1983). Here, however, the Commission elected to deviate from strict volume

variable causation because of the unusual and constraining

geographical circumstances of Alaskan Parcel Post service.

__________

16 Although the Act directs the Commission to recommend

"changes in rates or fees in each class of mail" 39 U.S.C. s 3622(a)

(emphasis added), the Commission has carved out discrete subclasses of mail classes that it deems warrant separate consideration.

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In its decision the Commission applied a "premium costing

approach" under which the attributable costs of delivering

Alaskan Parcel Post were "calculated based on the nationwide

average costs of [ ] highway transportation," while "[t]he

remaining portion, approximately $70 million for the last

year, is transferred to the institutional cost pool and recovered through the markup procedure pursuant to the Act."

PRC Op. R97-1 at 220. The Commission's decision explained

this attribution only briefly:

The costs of serving areas without road access, the socalled Bush Country of Alaska, are considerably higher

than the costs of providing service to other areas in the

United States. Since the Postal Service's universal service obligation extends to citizens of all regions of the

United States, it would not be appropriate to recover all

these costs from the nonpreferential classes carried by

intra-Alaska-Air.

Id. The Commission explained its reasoning more clearly

and extensively in the 1990 postal ratemaking decision in

which, as the Commission specifically noted here, for the first

time "a portion of the costs of intra-Alaskan transportation

costs ... ha[d] been considered institutional, although they

are recognized as being volume variable in nature." Id.; see

Opinion and Recommended Decision of the United States

Postal Commission in Docket No. R90-1 (January 4, 1991),

III-194 to -237 (JA vol. i 814).

In the 1990 ratemaking the Commission determined:

The record supports a finding that nonpriority Alaska air

costs are attributable only to the extent that they substitute for the surface costs that would be incurred if that

transportation service were available. The remaining

costs, which we refer to as the "universal service obligation premium," are institutional. These costs are

caused by the Postal Service's statutory obligation to

serve the entire nation.

Id. at III-195. The Commission defended its use of the

"premium costing approach" as reasonable under the circumstances:

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Our approach is the one supported by the record before

us. The evidence shows that the costs are being overattributed, and it is our statutory duty to be as accurate

as possible in attributing costs. Over-attribution can be

just as much an error as the under-attribution proscribed

by section 3622(b)(3). Our approach is a better reflection

of reality. And, as this record shows, the potential to

support the rate design and rate schedules of two subclasses, parcel post and Priority Mail, requires that the

costing method be improved.

Id. at III-212. The Commission also explained why it considered the Alaskan air costs caused by and therefore attributable to the Postal Service's universal mail obligation:

In considering these costs and the mail which is being

carried on both mainline and bush transportation, we

look for the true causal connection. Regardless of how

these costs might actually vary with volume, we find that

the premium is caused by the statutory obligation to

provide universal service rather than the mail volumes.

It is true that if none of this mail existed, the costs would

not be incurred. It is difficult to believe, however, that

this nonpreferential mail would be incurring these very

high air costs in the absence of a statutory mandate to

serve the entire nation. The Postal Service interprets its

duty as one to offer its basic services to every part of the

country, and not to deny the lower priced parcel post

service to people who live in remote areas which have

only expensive transportation available.

Id. at III-213 to -14 (footnote & record citation omitted).

The Commission's reasoning adequately supports its bifurcated attribution of Alaskan air costs.

Nevertheless, UPS contends the Commission's use of the

premium cost approach violates the Act because it either (1)

fails to allocate to Parcel Post the Alaskan air costs that the

Commission has found attributable to that subclass or (2) fails

in the first instance to find that such costs are attributable to

Parcel Post even though the Commission acknowledged the

costs "are recognized as being volume variable in nature."

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PRC Op. R97-1 at 220. UPS's first objection is easily

answered: the Commission specifically found that the "premium" air delivery costs are attributable not to Parcel Post

service but to the statutory universal service obligation. As

for the second, although the Commission has generally used

volume variability to attribute costs, the Act itself does not

require any specific cost method or define the term "attributable," which, as the Commission's analysis demonstrates, can

have various meanings that support various attribution methods. See National Ass'n of Greeting Card Publishers, 462

U.S. at 825-26. ("We agree with the Rate Commission's

consistent position that Congress did not dictate a specific

method for identifying causal relationships between costs and

classes of mail, but that the Act 'envisions consideration of all

appropriate costing approaches.' ") (quoting Commission's decision). Instead, the Act "leaves it to the Commissioners, in

the first instance, to decide which methods provide reasonable

assurance that costs are the result of providing one class of

service." Id. at 833; see also id. at 827 ("On its face, there is

no reason to suppose that s 3622(b)(3) denies to the expert

ratesetting agency, exercising its reasonable judgment, the

authority to decide which methods sufficiently identify the

requisite causal connection between particular services and

particular costs."). Because "the statute is silent or ambiguous" on which cost method to use, "the question for the court

is whether the agency's answer is based on a permissible

construction of the statute." Chevron USA, Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837, 843 (1984); see

also National Ass'n of Greeting Card Publishers, 462 U.S. at

814-15. Based on its analysis in the 1990 ratemaking decision,

we conclude that the Commission's choice of the premium

methodology reflects a reasonable construction of the Act and

must therefore be upheld.

D. Priority Mail Institutional Costs

UPS next challenges the Commission's allocation of Priority Mail institutional costs.17 The Commission assigns institu-

__________

17 "Priority mail is a service available for all mailable items up to

70 pounds in weight that offers somewhat more expedited delivery

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tional costs by establishing a separate markup for each class

of mail and then applying the markup to the class's attributable costs. In this ratemaking the Commission recommended

an institutional markup for Priority Mail of 66.1%. UPS

contends this markup is artificially low and shifts to First

Class mail institutional costs reasonably assignable to Priority

Mail in violation of section 3622(b)(3). We conclude the

institutional costs for Priority Mail are, as the statute requires, "reasonably assignable" to the subclass and we therefore uphold them.

As we noted above, once the Commission has established

attributable costs under its two-tier cost methodology, it must

then allocate institutional costs by " 'reasonably assign[ing]'

the remaining costs to the various classes of mail on the basis

of the other factors set forth in s 3622(b)." National Ass'n of

Greeting Card Publishers, 462 U.S. at 815 (internal citation

omitted). In assigning Priority Mail institutional costs, the

Commission relied heavily on the second statutory factor

included in section 3622(b): "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."

39 U.S.C. s 3622(b)(2). The Commission cited testimony that

Priority Mail has a high "intrinsic value of service," which

might justify a higher share of institutional costs, but also

noted that it has a "high own-price elasticity," meaning that

rate increases might drive away customers despite the high

intrinsic value, therefore calling for a lower markup. PRC

Op. R97-1 at 359. The Commission further pointed to testimony questioning the value of Priority Mail's service because

(1) it often falls short of one- and two-day delivery benchmarks, (2) its service will deteriorate further with implementation of a new processing network service, (3) its market

__________

than First-Class Mail. On this basis, it competes in the two-day

document and package market. Priority Mail also constitutes the

extension of First-Class-Mail services to pieces weighing 11 ounces

or more. Consequently, Priority Mail consists both of monopoly

letter mail and items that could be delivered by a competing

carrier...." PRC Op. R97-1 at 352.

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share has been decreasing, and (4) it lacks enhancements

available with private priority delivery services, such as automatic insurance coverage, billing, payment and rate options

and guaranteed delivery. Id. at 360-62. Based on its perception of the value of Priority Mail service and of the

deleterious effect a price increase might have, the Commission concluded that a "reduction in the proportional contribution by Priority Mail is not unreasonable," especially since

even the lower markup the Commission recommended led to

a rate increase for Priority Mail that exceeded the systemwide average. Id. at 362. UPS challenges the 66.1% Priority

Mail markup primarily on two grounds. We find neither one

persuasive.

First, UPS contends that in the 1997 ratemaking the

Commission impermissibly "changed course" without explanation because for the first time it assigned a lower markup to

Priority Mail than to regular First Class mail. This argument misapprehends the Commission's institutional cost assignment process. The Commission has not, in this ratemaking or previous ones, assigned the Priority Mail markup

based on its relationship to the First Class markup, as is

manifest from the widely varying gaps between the two

markups in each of the ten ratemakings conducted under the

Act. See JA vol. i 706. Instead, the Commission assigned

the markup here, as before, based on consideration of the

mandatory statutory factors. See PRC Op. R97-1 at 371.18

It was these factors, and the second one in particular, that led

the Commission to assign lower institutional costs to Priority

Mail.

UPS also argues that consideration of the fourth and fifth

statutory factors ("the effect of rate increases upon the

__________

18 The Commission did remark that, because Priority Mail is "an

extension of First Class Letters and Sealed Parcels," assigning it "a

markup similar to First-Class letters is justified," PRC Op. R97-1

at 362, but only after it assigned the markup-apparently as back-up

justification and in answer to UPS's claim that the relationship

between the two markups should stay the same as in the previous

ratemaking. See PRC Op. R97-1 at 359-60.

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general public, business mail users, and enterprises in the

private sector of the economy engaged in the delivery of mail

matter other than letters" and "the available alternative

means of sending and receiving letters and other mail matter

at reasonable costs," 39 U.S.C. s 3622(b)(4), (5) requires that

the Commission assign lower universal costs to the monopoly

regular First Class mail than to Priority Mail because those

factors were intended to protect the interests of First Class

customers, who have no private alternative, and of Priority

Mail competitors, each of which will be harmed by higher

First Class and lower Priority Mail rates. We disagree.

While the Commission must " 'take into account all the relevant factors and no others,' " Mail Order Ass'n, 2 F.3d at 426

(quoting Association of Am. Publishers, 485 F.2d at 775), it

need not give each factor equal weight. " '[U]nder familiar

jurisdictional principles,' " we " 'may not, and under human

limitations generally could not, reassess the weights given by

a rate-making agency to different factors, absent a legislative

direction as to precisely what gravity each factor bears.' " Id.

(quoting Association of Am. Publishers, 485 F.2d at 774-75).

Given that the Act provides no such direction, we cannot fault

the Commission's determination that the second factor is the

decisive one here. In any event, UPS's reading of the

statutory provisions it invokes is unduly narrow. By its

terms, s 3622(b)(4) allows the Commission to consider lowering rates in order to protect "the general public [and] business mail users," as well as raising them in the interests of

"enterprises in the private sector ... engaged in the delivery

of mail matter." As to s 3622(b)(5), the Commission has

consistently, and reasonably, held that it authorizes a reduction in rates to maintain the position of the Postal Service as

a competitor in the mail delivery industry.

E. "Local Only" Mail

Finally, Niagara Telephone Company (Niagara) challenges

the Commission's rejection of Niagara's proposed separate

rate for mail deposited in "local only" mail boxes located at

individual post offices. Niagara maintains that, because this

mail is sorted by the sender, it costs the Postal Service less to

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deliver than other First Class mail and that this savings

should be passed on to customers. The Commission rejected

Niagara's proposal because "the record remains undeveloped

on matters critical to a determination on the merits, such as

its impact on net revenues." PRC Op. R97-1 at 345. We see

no defect in the Commission's determination.

In Mail Order Ass'n, we upheld the Commission's decision

not to establish a separate classification and rate, proposed by

Niagara, for "non-transported" mail that never leaves the

post office where deposited but is placed directly into on-site

post office boxes (specifically, utility bills Niagara sent to

customers). The court reasoned:

Even though 39 U.S.C. s 3622(b)(3) requires each "class

of mail or type of mail service" to recover its attributable

costs, that section does not require creation of a separate

class of mail for every single cost characteristic. As we

noted before, s 3622(b)(7) allows the Commission to consider the simplicity of the rate structure, and a separate

rate for every group of mailers with special cost savings,

no matter how small the group, would produce a hopelessly complicated rate schedule. This does not mean

the Commission may always reject proposed cost-based

classifications in order to avoid complexity in the rate

schedule; in some cases the facts might be compelling

enough to require a new classification. Here, however,

given the complete absence of evidence establishing the

existence of a substantial category of mail systemically

involving lower costs, the Commission's rejection of Niagara's proposal was not arbitrary or a violation of

s 3622(b)(3).

Mail Order Ass'n, 2 F.3d at 426. In this case too there is no

record evidence to compel creation of the mail subclass

Niagara proposes and we therefore conclude the Commission

reasonably declined to do so.

For the preceding reasons, the petitions for review are

Denied.

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