[Federal Register Volume 72, Number 170 (Tuesday, September 4, 2007)]
[Proposed Rules]
[Pages 50744-50786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-4269]



[[Page 50743]]

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Part III





Postal Regulatory Commission





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39 CFR Parts 3001, 3010, 3015, and 3020



Administrative Practice and Procedure, Postal Service; Proposed Rule

Federal Register / Vol. 72, No. 170 / Tuesday, September 4, 2007 / 
Proposed Rules

[[Page 50744]]


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POSTAL REGULATORY COMMISSION

39 CFR Parts 3001, 3010, 3015 and 3020

[Docket No. RM2007-1; Order Nos. 26 and 27]


Administrative Practice and Procedure, Postal Service

AGENCY: Postal Regulatory Commission.

ACTION: Proposed rule.

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SUMMARY: A recently-enacted federal law directs the Commission to 
develop rules to implement a new postal ratemaking system. This 
proposal responds to that directive by presenting rules addressing 
market dominant and competitive products, including negotiated service 
agreements, the regulatory calendar, and product lists. This document 
incorporates a revision identified in an errata notice. Issuance of 
this document will allow the Commission to consider comments and, if 
appropriate, to make revisions prior to adoption of final rules.

DATES: Submit comments by September 24, 2007; submit reply comments by 
October 9, 2007.

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

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6820 and <a href="/cdn-cgi/l/email-protection#611215041109040f4f12090013070c000f211113024f060e17"><span class="__cf_email__" data-cfemail="483b3c2d38202d26663b20293a2e25292608383a2b662f273e">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

Regulatory History

    72 FR 5230, February 5, 2007.
    72 FR 29284, May 25, 2007.
    72 FR 33261, June 15, 2007.

I. Introduction

    This is the third in a series of orders designed to establish 
regulations implementing a modern system for regulating rates and 
classes for market dominant and competitive products.\1\ In response to 
those earlier orders, the Commission received more than 100 comments 
from interested parties.\2\ The Commission has reviewed these comments 
carefully. They have been useful in clarifying the Commission's 
analysis, and the parties' contributions are appreciated.
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    \1\ PRC Order No. 2, January 30, 2007 and PRC Order No. 15, May 
17, 2007.
    \2\ Attachment A to this order contains a list of the parties 
filing comments.
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    In this order, the Commission outlines how it intends to administer 
various provisions of the Postal Accountability and Enhancement Act 
(PAEA), Pub. L. No. 109-435, 120 Stat. 3198 (December 20, 2006). The 
proposed regulations are set forth in section V. Comments are due by 
September 14, 2007. Reply comments are due by September 28, 2007.
    Although afforded 18 months, until June 19, 2008, to promulgate the 
new regulations under the PAEA, the Commission has made a concerted 
effort to accelerate that schedule considerably. The Commission views 
early implementation as beneficial to all stakeholders. Early 
implementation of a ratemaking framework prior to the statutory 
deadline will enable the Postal Service to use new, streamlined 
procedures to initiate rate (and class) changes as needed to respond to 
its financial needs and market conditions. The regulations may serve as 
a safety valve, providing an immediate means to address challenges 
faced by the Postal Service and perhaps obviate the necessity for rate 
relief through an omnibus rate case under existing procedures. The 
commenters urge that such a filing should be avoided, thereby allowing 
the Postal Service and the Commission to dedicate more resources to 
thoughtfully implementing other aspects of the reform legislation. It 
would be unfortunate if, in this reformed environment, rate changes had 
to be litigated under the old cost of service system. Having this new 
framework in place, and the Postal Service operating under the new 
framework as early as practical, would provide the Postal Service 
flexibility to respond quickly to changed conditions.
    The Commission's goal is to make this new system of rate adjustment 
advantageous for all stakeholders, enabling the Postal Service to price 
its own products, ensuring the lawfulness of competitive rates, 
providing increased transparency, and maintaining universal service at 
affordable rates. Fulfilling these objectives requires that competing 
interests be carefully balanced.
    The Commission, among other things, identifies the mail matter that 
comprises each type of mail listed in section 3631(a) and the products 
within the competitive category of mail. It also discusses generally 
the mail matter that comprises each type of mail listed in section 
3621(a). However, in lieu of identifying specific market dominant 
products, the Commission has determined that for reasons of accuracy 
and expedition, it would be preferable to accept the Postal Service 
offer to prepare and submit a draft mail classification schedule, 
which, inter alia, identifies the market dominant products it believes 
should be contained therein. This will enable the Postal Service to 
categorize its market dominant services into products that best serve 
its business needs. In addition, it will permit the Postal Service to 
fashion a draft mail classification schedule with what it believes is 
an appropriate level of detail. The Commission then will be able to 
evaluate this draft for consistency with the principles discussed in 
this order. The draft mail classification schedule is due September 14, 
2007. Comments on the draft mail classification schedule are due 
September 28, 2007.
    The proposed regulations represent the Commission's initial effort 
to establish a functional framework for regulating rates and classes 
for market dominant and competitive products. The proposed regulations 
do not seek to address every issue that might arise under the PAEA. The 
intent is that these regulations provide a reasonable starting point 
and that they will evolve over time.
    In the sections that follow, the Commission discusses proposed 
regulations governing:
    <bullet> Rules Applicable to Rate Adjustments for Market Dominant 
Products (part 3010);
    <bullet> Regulation of Rates for Competitive Products (part 3015); 
and
    <bullet> Product Lists (part 3020).
    The Commission must also issue proposals amending the structure of 
its rules, and specific regulations applicable to complaints, reporting 
requirements, and commercially sensitive materials, as well as 
regulations to implement sections 404a and 504(f). Completing those 
tasks is complementary to the proposed regulations, which, once 
implemented, will be sufficient to enable the Postal Service to begin 
to operate as contemplated by the PAEA.

II. Market Dominant Products

A. Introduction

    Background. This segment of the rulemaking focuses on rate changes 
referred to as ``rate adjustments'' in the PAEA for market dominant 
products. The emphasis is on proposing regulations that will provide 
the Postal Service with the option of pursuing its next general round 
of price changes under the new law's ratesetting provisions, which 
feature a price cap mechanism and a streamlined advance notice and 
review, and on providing a comprehensive framework.
    Much of the discussion on this topic since the enactment of the 
PAEA has occurred in the context of a joint Postal Regulatory 
Commission-Postal Service

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summit, regional field hearings, \3\ comments filed in response to 
Commission orders, \4\ and Congressional hearings. The Commission's 
preliminary conclusions about the direction of this regulatory effort 
reflect considered review of the comments and testimony presented in 
these forums.
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    \3\ See PRC Order No. 19, Notice and Order on Field Hearings to 
Receive Testimony on Implementation of Modern System of Ratemaking, 
Docket No. RM2007-1, June 8, 2007.
    \4\ The parties have submitted several rounds of comments in 
response to the two advance notices of proposed rulemaking. As a 
matter of convenience, citations to these comments will identify the 
party's comments by filing date; reply comments will be so denoted. 
For example, the referenced Postal Service initial comments are 
cited as Postal Service Comments, June 18, 2007, at xx; reply 
comments are cited similarly, e.g., PSA Reply Comments, July 3, 
2007, at xx.
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    Commenters identify two main tasks for the Commission at this stage 
of implementation. One is reaching consensus on conceptual and 
practical aspects of the scope, depth and timeframe of Commission 
review of planned rate changes. The other is transforming numerous 
statutory requirements, objectives and factors into a new ``road map'' 
for navigating the regulatory calendar, expedited procedures, and price 
cap mechanism that are core components of the new system. Most 
commenters observe that these tasks involve balancing policy 
considerations, pragmatic concerns, and a revamped PRC/Postal Service 
partnership.\5\ They agree that the statute provides certainty on some 
key points, but point to numerous instances where other important 
issues are open to interpretation. Some urge the Commission to adopt a 
light-handed approach to the new notice-and-review process, with the 
price cap calculation being the sole focus.\6\ Others caution that 
implementation will allow price changes to occur more often than 
annually, the cap to be applied unequally to products within a class of 
mail, and the cap to be exceeded (within a certain range) under an 
exception referred to as ``unused rate adjustment authority'' or the 
banking exception. They suggest that these possibilities may have 
significant implications with respect to mailers' expectations that the 
modern system will provide predictability, certainty and stability.
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    \5\ See, for example, Advo Comments, April 6, 2007, at 2-3; MOAA 
Reply Comments, May 7, 2007, at 1-2; PSA Comments, April 6, 2007, at 
1-4; Time Warner Comments, April 6, 2007, at 1-3; and Postal Service 
Comments, April 6, 2007, at 2-4.
    \6\ Jon Mulford, for example, states: ``[the] PAEA has given the 
Commission extraordinary power to regulate the USPS. The Commission, 
in devising its system for setting rates * * * should at all costs 
avoid unnecessarily tying USPS management's hands as they attempt to 
cope with an impending financial crisis.'' Mulford Comments, March 
9, 2007, at 5.
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    The Commission appreciates the responses to its request for 
assistance in developing new regulations, and finds that the 
commenters' observations provide useful guidance. It also appreciates 
the Postal Service's efforts, outside of this rulemaking, to work with 
mailers on developing a viable regulatory calendar and on addressing 
rate implementation issues. See Postal Service Reply Comments, May 7, 
2007, at 3-4 and Appendix B. The Commission proposes basic rules 
regarding the regulatory calendar in proposed rule 3010.7.

B. Statutory Framework for Rate Changes

    Section 3622(d) of the PAEA, captioned ``Requirements,'' addresses 
some of the mandatory features the Commission must include in the 
modern regulatory system.\7\ It provides, in pertinent part:

    \7\ These requirements are not ``stand alone'' elements of the 
new system, but must be given effect in concert with certain 
statutory factors and objectives. However, unlike the 
``requirements,'' most of which are new postal ratemaking features, 
many of the factors and objectives are identical to those employed 
in the Postal Reorganization Act of 1970 (PRA) ratemaking.

    (1) In General.--The system for regulating rates and classes for 
market-dominant products shall--
    (A) include an annual limitation on the percentage changes in 
rates to be set by the Postal Regulatory Commission that will be 
equal to change in the Consumer Price Index for All Urban Consumers 
unadjusted for seasonal variation over the most recent available 12-
month period preceding the date the Postal Service files notice of 
its intention to increase rates;
    (B) establish a schedule whereby rates, when necessary and 
appropriate, would change at regular intervals by predictable 
amounts;
    (C) not later than 45 days before the implementation of any 
adjustment in rates under this section, including adjustments made 
under subsection (c)(10)-
    (i) require the Postal Service to provide public notice of the 
adjustment;
    (ii) provide an opportunity for review by the Postal Regulatory 
Commission;
    (iii) provide for the Postal Regulatory Commission to notify the 
Postal Service of any noncompliance of the adjustment with the 
limitation under subparagraph (A); and
    (iv) require the Postal Service to respond to the notice 
provided under clause (iii) and describe the actions to be taken to 
comply with the limitation under subparagraph (A);
    (D) establish procedures whereby the Postal Service may adjust 
rates not in excess of the annual limitations under subparagraph 
(A).
* * * * *
    However, the ``price cap'' in subsection 3622(d)(1)(A) is not an 
absolute limit; other provisions expressly require that the new 
system:
    (E) notwithstanding any limitation set under subparagraphs (A) 
and (C), and provided there is not sufficient unused rate authority 
under paragraph (2)(C), establish procedures whereby rates may be 
adjusted on an expedited basis due to either extraordinary or 
exceptional circumstances, provided that the Commission determines, 
after notice and opportunity for a public hearing and comment, and 
within 90 days after any request by the Postal Service, that such 
adjustment is reasonable and equitable and necessary to enable the 
Postal Service, under best practices of honest, efficient, and 
economical management, to maintain and continue the development of 
postal services of the kind and quality adapted to the needs of the 
United States.
* * * * *
    Further, the following provisions in subsection 3622(d)(2) 
authorize the annual cap to be exceeded under certain conditions:

* * * * *
    (C) Use of Unused Rate Authority.--
    (i) Definition.--In this subparagraph, the term ``unused rate 
adjustment authority'' means the difference between--
    (I) the maximum amount of a rate adjustment that the Postal 
Service is authorized to make in any year subject to the annual 
limitation under paragraph (1); and
    (II) the amount of the rate adjustment the Postal Service 
actually makes in that year.
    (ii) Authority. Subject to clause (iii), the Postal Service may 
use any unused rate adjustment authority for any of the 5 years 
following the year such authority occurred.
    Finally, the exercise of ``banking authority'' is itself subject 
to the following limitations:
    (iii) Limitations.--In exercising the authority under clause 
(ii) in any year, the Postal Service--
    (I) may use unused rate adjustment authority from more than 1 
year;
    (II) may use any part of the unused rate adjustment authority 
from any year;
    (III) shall use the unused rate adjustment authority from the 
earliest year such authority first occurred and then each following 
year; and
    (IV) for any class or service, may not exceed the annual 
limitation under paragraph (1) by more than 2 percentage points.

* * * * *
    These comprehensive provisions unequivocally establish subsection 
3622(d) as the administrative cornerstone of the new rate setting 
system for market dominant products. Collectively, streamlined advance 
review procedures, the price cap mechanism, the banking exception, and 
the exigency clause are designed to foster pricing flexibility, reduce 
burden, and facilitate quick implementation of rate changes. The 
Commission's proposed regulations are intended to fill in many of the 
details of price cap

[[Page 50746]]

administration, content of rate change filings, and due process.

C. Summary of Main Issues

    The PAEA specifies use of the Bureau of Labor Statistics' widely-
known CPI-U, but does not address some related aspects of 
administration, such as how to calculate the index adjustment and how 
to calculate the base to which the adjustment applies. It also does not 
address the extent of documentation of worksharing discounts. The 
Commission sought comments on these matters in its Second Advance 
Notice of Proposed Rulemaking on Regulations Establishing a System of 
Ratemaking, May 17, 2007.
    Additional implementation issues raised in the comments include:

--whether the phrase ``not later than 45 days'' used in section 
3622(d)(1)(C) limits Commission review to this number of days, or 
allows a longer period;
--whether price change filings, other than exigent requests, involve 
``barebones'' notice and documentation or more comprehensive support;
--Whether the Commission's advance review is limited to assessing 
compliance with the price cap provisions or extends to other matters, 
such as an evaluation of worksharing discounts;
--whether the Commission should solicit public comment in routine rate 
change filings;
--whether the authority to ``bank'' unused rate adjustment authority 
for up to 5 years carries with it the ability to apply the banked 
pricing credit to a class other than the one in which it was 
accumulated; and
--whether the rules should define ``exigent circumstances'' and whether 
trial-type proceedings must or should be held.

D. Structure of New Proceedings and Rules

    Review of the comments points to interest in a new road map for 
rate changes. William Berkley usefully highlights this by observing:

    We need to keep in mind that we have to keep proceedings simple 
and rules of practice simple to avoid a system that only postal 
attorneys and economists can use. We ask when you establish these 
new rules that you remember to keep it as simple as you can. 
Proceedings before every regulator are always difficult, but let us 
also insure that we make it easy to navigate and understand the 
proceedings in this evolving system.

Berkley Testimony at 5.\8\
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    \8\ Testimony of William S. Berkley, President and CEO, Tension 
Envelope Corporation, Before the United States Postal Regulatory 
Commission Field Hearing, Kansas City, June 22, 2007.
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    United Parcel Service (UPS), addressing implementation in general, 
asserts: ``To the extent possible, the Commission should interpret PAEA 
in a way that recognizes the value of administrative simplicity and 
practicality, and that minimizes the Postal Service's burden, while 
remaining consistent with the statutory requirements.'' UPS Reply 
Comments, July 3, 2007, at 10.
    Accordingly, the Commission proposes to:

--Organize most of the rules directly affecting market dominant 
products into a largely self-contained unit;
--Standardize terms, definitions and methods to the extent feasible; 
and
--Establish streamlined proceedings to facilitate all types of price 
changes.

    The Commission proposes to establish a separate part, designated 
part 3010, Rules Applicable to Rate Adjustments for Market Dominant 
Products, in 39 CFR. This part is divided into five subparts:
    Subpart A--General Provisions.
    Subpart B--Rules for Rate Adjustments for Rates of General 
Applicability (Type 1 Rate Adjustments).
    Subpart C--Rules for Applying the Price Cap.
    Subpart D--Rules for Rate Adjustments for Negotiated Service 
Agreements (Type 2 Rate Adjustments).
    Subpart E--Rules for Rate Adjustments in Exigent Circumstances 
(Type 3 Rate Adjustments).

E. Overview of Proposed Subpart A--General Provisions

    This subpart consists of seven proposed rules. The first provision, 
proposed 3010.1, captioned ``Applicability,'' is a general 
representation that the rules in subpart A implement the ratesetting 
policies and procedures of the PAEA for market dominant products. It 
also notes a distinction between ``notice'' filings and ``request'' 
filings.
    Proposed 3010.2(a) codifies the following basic scenarios in which 
rate changes for market dominant products may be addressed: under price 
cap authority or a variation thereon, often referred to by commenters 
as the banking exception or banking authority; under a special 
contractual, or negotiated service agreement; and under an exigent 
circumstance. For ease of reference and reporting, this rule reflects 
the Commission's proposal to refer to each of these scenarios as 
``types'' of filings, similar to the approach that has been used 
successfully for six categories of library references since Docket No. 
RM98-2. The Commission notes, for example, that for purposes of 
conducting the 10-year assessment of the new ratesetting approach, it 
may prove useful to have a ready tool for determining how many 
different types of notices and requests have been filed. The Commission 
incorporates these definitions into the regulations and the 
accompanying discussion. The following table summarizes this approach.

            Table II-1.--Summary of Alternative Filing Terms
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                                                          Proposed
      Statutory source            Filing basis         alternative(s)
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39 U.S.C. 3622(d)(1)(A).....  ``annual limitation   Type 1-A Rate
                               on the percentage     Adjustment.
                               changes in rates''.
39 U.S.C. 3622(d)(2)(C)(i)..  ``unused rate         Type 1-B Rate
                               adjustment            Adjustment.
                               authority''.
39 U.S.C. 3622(c)(10).......  ``the desirability    Type 2 Rate
                               of special            Adjustment.
                               classifications . .
                               . including
                               agreements between
                               the Postal Service
                               and postal users''.
39 U.S.C. 3622(d)(1)(E).....  ``due to either       Type 3 Rate
                               extraordinary or      Adjustment.
                               exceptional
                               circumstances''.
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F. Overview of Proposed Subpart B--Rules for Rate Adjustments for Rates 
of General Applicability (Type 1 Rate Adjustments)

    This subpart consists of five rules. These rules lay out basic 
procedures and certain fundamental Commission positions. Some of the 
debate among commenters centered on the timeframe for Commission action 
in a price change proceeding and on public input. The timeframe issue 
stems from the highlighted wording in the following passage from the 
PAEA:

    (C) not later than 45 days before the implementation of any 
adjustment in rates under this section, including adjustments made 
under subsection (c)(10)--
    (i) require the Postal Service to provide public notice of the 
adjustment;
    (ii) provide an opportunity for review by the Postal Regulatory 
Commission.

    39 U.S.C. 3622(d)(1)(C)(i)-(ii).

    The crux of the issue is whether the statute intends 45 days as the 
maximum or minimum period for advance notice and review. The Postal 
Service appears to read this language as establishing a statutory 
maximum, but acknowledges that some changes, as a matter of good 
business practice, such as those involving new worksharing discounts, 
will create more implementation issues. It indicates that it intends to 
provide additional notice in these instances. Postal Service Comments, 
June 18, 2007, at 14-15. The Mail Order Association of America (MOAA) 
shares the Postal Service's view. MOAA Reply Comments, May 7, 2007, at 
14-15. Many commenters, however, see the wording in the statute as 
establishing a minimum, and therefore clearly authorizing the 
Commission to require the Postal Service to provide more notice. Time 
Warner suggests 90 days. Time Warner Comments, April 6, 2007, at 15.
    The Commission concludes that as a matter of statutory 
interpretation, the Postal Service's position reads the qualifier ``at 
least'' completely out of the statute. The conclusion more consistent 
with the statute's overall theme of transparency is that 45 days is the 
minimum period required by the statute, and the Commission may require 
a longer period in certain circumstances.\9\ At the same time, it seems 
that any extension should be in keeping with the notion of streamlined 
review; thus, the four months the OCA suggests as the routine approach 
appears excessive for the Commission's task of assessing the planned 
rate changes in terms of the price cap and/or the use of banking 
authority.
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    \9\ Based on the Postal Service's comments, it anticipates 
filing 90 days in advance of implementation with the first 45 days 
constituting the statutory period for Commission review and the 
second half for implementation.
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    The Commission concludes that for purposes of drafting an initial 
set of regulations, the language from the statute requiring notice and 
review ``not later than 45 days'' can be carried over directly into 
proposed rules 3010.10(a)(1) and (2). A provision in proposed rule 
3010.10(b) encouraging more time for review recognizes the Postal 
Service's representations on this record that it intends to provide 
additional time for review when price changes are more complicated. 
Postal Service Comments, June 18, 2007, at 9-10. Proposed rule 
3010.10(a) does not require the Postal Service to publish a Federal 
Register notice concerning a planned adjustment, but does contemplate 
broad dissemination of its intent to the mailing community and to the 
general public. This typically provides more effective notice than a 
Federal Register notice, in keeping with a modern rate setting system, 
and reduces administrative burden by freeing the Postal Service from 
the production details necessarily associated with Federal Register 
publication. The Commission notes that it imposes on itself, in 
proposed rule 3010.13(a), an obligation to publish notice of a rate 
adjustment filing in the Federal Register.
    Commenters are divided on the question of public input during the 
review period. Some, including the Postal Service, argue against it on 
grounds that the logic of the PAEA suggests that if public input is not 
expressly provided for in the statute, it is not authorized. On the 
other hand, the OCA and several others think it would be helpful. 
Newspaper Association of America (NAA), for example, asserts that 
allowing public comment would promote transparency. NAA Comments, March 
30, 2007, at 2. NAA acknowledges that the new statute expressly 
provides for public participation when rate adjustments are based on 
exigent circumstances, but asserts:

    Nothing in the PAEA, however, prohibits the Commission from 
inviting such comment also when the Postal Service purports to 
notice rate adjustments consistent with the CPI limitation. Public 
comment--which necessarily would have to be expedited and would be 
submitted in writing--would promote transparency and could provide 
information helpful to the Commission's review.

Id. at 7.

    It adds:

    Where the Postal Service's notice is straightforward, there 
likely will be relatively few comments. However, in instances when 
the Postal Service notices a more complicated set of rate changes, 
the Commission may benefit from the insights that the mailing 
community and broader public may be able to offer. The stakes of 
this review are important because the rates that will take effect 
from this process will be in effect for a substantial period of time 
before they are later reviewed by the Commission either in an annual 
review or in a complaint.

Id. at 7-8.

    The Commission agrees that the statute does not expressly provide 
for public participation during the review period as it does in the 
exigency clause (in subsection 3622(d)(1)(E)). At the same time, the 
statute gives the Commission broad discretion in deciding on how to 
conduct its review. It follows that if the Commission believes public 
input might be helpful in determining the compliance of the anticipated 
rate changes with the statutory pricing provisions, there is no 
statutory bar to incorporating this into its review proceedings/
procedures. The Commission believes this will be the case, and 
provides, in proposed rule 3010.13(a) for 20 days (from the date of 
filing of a rate adjustment notice) for the public to file written 
comments.
    Proposed rule 3010.11 addresses several ``housekeeping'' details. 
It notes the limitation on rate increases in any 12-month period, the 
existence of CPI-U as a limitation, the exception allowing annual 
recapture of unused rate authority, and the allocation of unused rate 
authority to each class of mail. The latter provision directly 
addresses some commenters' concerns about ``cross-class'' banking.
    Proposed rule 3010.12 adopts the PAEA's stated inflation measure 
(CPI-U) and describes the source as the Bureau of Labor Statistics. The 
clarity of the PAEA on this point meant that there was no debate among 
the commenters on the benchmark that is to be used.
    Proposed rules 3010.13 and 14 address the nature of proceedings and 
the content of rate adjustment filings, and are the most extensive 
rules in this subpart. The flagship proceedings under the former 
statutory structure were 10-month trial-type ``omnibus'' rate and 
classification proceedings, bookended between considerable advance 
preparation on the part of the Postal Service (and many mailers) and a 
post-decision phase encompassing review by the Governors and the 
potential for reconsideration. Commenters agree that, barring a final 
omnibus rate case under 39 U.S.C. 3622(f), the PAEA casts that 
apparatus aside and replaces it with a

[[Page 50748]]

simpler process. In keeping with the new statutory emphasis on simpler 
proceedings, the Commission does not propose formal discovery, Notices 
of Inquiry, Presiding Officer's Information Requests, testimony, and 
hearings. It anticipates handling resolution of discrepancies or other 
matters through direct communication with the Postal Service.
    There also has been considerable discussion of the statutory scope 
of the Commission's review. The main positions are that it extends to:

--Only, or primarily, the price cap;
--The price cap, plus some evaluation of worksharing; and
--The price cap, worksharing evaluation, plus consistency with 
statutory factors and objectives, plus identification of certain 
features, such as differential intra-class treatment exceeding a 
certain percentage.

    Some commenters, such as the Postal Service and MOAA, advocate 
``light-handed'' review, the OCA seeks extensive review, and some, such 
as the NAA, take a middle ground. NAA suggests that during the review 
period, the Commission has, at a minimum, legal authority:

--To review the notices of rate adjustments for compliance with the CPI 
cap;
--To review the noticed change to ensure at least facial compliance 
with the provisions of section 3622(e) regarding workshare discounts;
--To prohibit rates that are unlawful on their face from taking effect; 
and
--To review the justification for changes in rate categories within a 
class that exceed CPI by an amount set by the Commission, such as the 
CPI plus 2 percent proposed by NAA.

NAA Reply Comments, May 7, 2007, at 25-26.

    The Commission agrees that the PAEA ushers in a fundamentally 
different approach to rate regulation for market dominant products, and 
that its implementing regulations should honor the spirit and letter of 
the new law. Proposed rule 3010.13(b) limits the appropriate scope of 
public comments to compliance with the price cap formula and 
consistency with certain statutory policies; thus, they represent a 
marked shift away from PRA-style in-depth examination. The proposed 
scope of public comment is no longer open-ended. The Commission does 
not invite, and will not entertain, public comment during the 45-day 
review period on matters such as costing methods. Moreover, in proposed 
rule 3010.13(e), the Commission expedites review to determine the 
consistency of an amended notice of rate adjustment with filing 
requirements.
    Filing contents. Proposed rule 3010.14 describes the contents of 
the Postal Service's rate adjustment filings. The notice is to include 
a schedule of proposed rates, identification of the effective date(s), 
and a representation or evidence that public notice of the planned 
changes has been issued or will be issued at least 45 days before the 
effective date(s) of the proposed rates.
    In addition, proposed rule 3010.14(b)(1)-(8) identifies explanatory 
material that is to be provided. This includes the amount of the 
applicable change in CPI-U calculated under Commission rules and the 
percentage change in rates for each class, calculated as required by 
Commission rules along with supporting workpapers. It also includes the 
amount of new unused rate authority that will be generated by the 
instant notice of rate adjustment and a 5-year schedule showing unused 
rate authority for each class of mail, along with supporting 
calculations. For Type 1-B filings, which draw on recaptured pricing 
authority, the Postal Service is to identify for each affected class 
how much existing unused rate authority is used in the proposed rates 
calculated as required by Commission rules. See proposed rule 
3010.14(d). An explanation must be provided if new unused rate 
authority will be generated for a class of mail that is not expected to 
cover its attributable costs.
    Several commenters express concern about the potential for intra-
class increases to exceed the cap. NAA asserts that the Postal 
Service's authority to exceed the annual cap for a rate category is not 
unlimited, as the phrase ``predictable amounts'' is not limited to the 
aggregate change for a class, but ``on its face requires that the 
specific rate changes themselves within the class should be reasonably 
predictable.'' NAA Comments, March 30, 2007, at 9. It contends that 
objective 8, which requires that the rate schedule be ``just and 
reasonable'' supports this interpretation. Id. NAA suggests that the 
Commission impose a standard whereby, absent special justification, 
increases for a rate category beyond a pre-established range (such as 
CPI plus 2 percent) would not be considered ``predictable'' or ``just 
and reasonable.'' Id. at 9-10. It asserts that this approach, which it 
refers to as a ``soft band,'' would satisfy the statutory objective of 
providing the Postal Service with pricing flexibility, while honoring 
the provision in objective 8 allowing changes of unequal magnitude 
within, between or among class of mail. Id. at 9; NAA Reply Comments, 
May 7, 2007, at 8. In terms of proposed rules, NAA suggests that the 
Postal Service could be required to certify that no rate would change 
by more than the permitted range (when this is the case) or bring 
changes exceeding the range to the Commission's attention and provide 
additional justification. NAA Comments, March 30, 2007, at 10. It 
contends that over time, as the Commission reviews these explanations 
on a case-by-case basis, it will become evident which explanations are 
adequate to allow the rates to become effective, and which are not. NAA 
Reply Comments, May 7, 2007, at 8.
    The Parcel Shippers Association (PSA) does not suggest prohibiting 
adjustments beyond a certain level, but suggests that the Commission 
require the Postal Service to provide a written, on the record, 
justification for any market dominant rate increases that substantially 
exceed inflation. PSA Comments, April 6, 2007, at 4-5, 22-23. (Emphasis 
in original.)
    In a similar vein, OCA suggests, given the potential for large 
percentage increases in rates for individual subclasses, that subclass 
increases be capped at 50 percent above the overall class increase. OCA 
Comments, June 18, 2007, at 2, 15-19. It notes:

    Some of the principles of rate setting include continuity of 
expectations, implementation of rates that are understandable, and 
perceived and/or actual fairness. Accordingly, some level of 
subclass protection appears to be appropriate. We suggest 50 percent 
as reasonable: that is, if rates for a class of service increase by 
an overall maximum of two percent, no subclass rate would increase 
by more than three percent.

    Id. at 15.

    Discover Financial Services, LLC (DFS) asserts that the OCA's 
recommendation is ``at odds with the legislation, which nowhere 
indicates that such a cap would be permissible. Indeed, notions that 
rates should be capped in any fashion other than at the class level 
were much debated in Congress and specifically rejected as not giving 
the Postal Service sufficient rate flexibility.'' DFS Further Comments, 
July 16, 2007, at 4.
    NAA, PSA and OCA identify a clear example of where statutory 
objectives may conflict. The Commission does not view capping subclass 
increases as sanctioned by the PAEA. Requiring a separate certification 
or justification is not statutorily suspect in the same sense; however, 
adopting a rule of this sort makes the process cumbersome. It is to be 
expected that rate adjustments within a class will be both above and

[[Page 50749]]

below average. Requiring written justification for individual rates is 
contrary to the goals of a simpler, more flexible, process. The 
Commission finds that the Postal Service should be given an opportunity 
to exercise its pricing flexibility by making changes of unequal 
magnitude without having to file separate justification for what some 
might consider ``excessive'' above-cap increases within a class. Should 
the Postal Service abuse this discretion, and regularly fail to develop 
rate adjustments consistent with the statutory objective of maintenance 
of just and reasonable rate schedules, additional regulations in this 
area can be developed.
    Information supporting proposed workshare discounts. The PAEA 
charges the Commission with establishing a modern system of ratemaking 
that is designed to achieve nine specific objectives including to 
maximize incentives to reduce costs and increase efficiency. The PAEA 
also enumerates several factors which must be considered by the 
Commission in establishing this system. Two of these factors--
3622(c)(5), 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; and 3622(c)(12), the need for the Postal 
Service to increase its efficiency and reduce its costs--can be linked 
directly to workshare discounts. Section 3622(e)(2) directs the 
Commission to ensure that [workshare] discounts do not exceed the cost 
that the Postal Service avoids as a result of workshare activity.\10\
---------------------------------------------------------------------------

    \10\ There are four limited exceptions to this mandate: (1) When 
the discount is new and mailers must be encouraged to use it; (2) 
when the discount is already in place and reducing it will cause 
rate shock; (3) when the discount is provided in connection with 
subclasses consisting exclusively of mail matter of educational, 
cultural, scientific, or informational value; and (4) when reducing 
or eliminating the discount would cause a shift in mail mix that 
would lead to operational inefficiencies for the Postal Service. For 
the first two exceptions, the Postal Service must eventually phase 
out the excess discount.
---------------------------------------------------------------------------

    The PAEA defines workshare discounts as rate discounts provided to 
mailers for the presorting, pre-barcoding, handling, or transportation 
of mail. Both the Commission and the Postal Service have long held the 
view that setting workshare discounts in line with the Efficient 
Component Pricing Rule (ECPR) is an effective method for encouraging 
efficient mailing practices. The ECPR is the principle that workshare 
discounts should be set equal, on a per-unit basis, to the costs 
avoided by the Postal Service when the mailer performs the workshare 
activity.
    Several parties reiterated the importance of ECPR in encouraging 
efficiency and satisfying the objectives of the PAEA. Pitney Bowes 
states ``regulations should require the Postal Service to establish 
discounts that reflect the full measure of workshare-related costs 
avoided to the extent practicable.'' Pitney Bowes Comments, April 6, 
2007, at 36. In addition, Pitney Bowes sponsored the comments of John 
Panzar which focus exclusively on the merits of continued use of ECPR 
in ratemaking. The Alliance of Nonprofit Mailers, National Association 
of Presort Mailers, and National Postal Policy Council (ANM/NAPM/NPPC) 
believe that the Postal Service's rates should be presumed reasonable 
as long as the discounts satisfy the ECPR. ANM/NAPM/NPPC Comments, 
April 6, 2007, at 16-19.
    Support for efficient component pricing is also found in testimony 
received during the Commission's field hearings. Don Hall, Jr., 
President and CEO of Hallmark Cards, seeks assurance that the workshare 
discounts will reflect the true savings to the Postal Service. 
Transcript of Kansas City Field Hearing, June 22, 2007, at 29. John 
Campo, Vice President of Postal Relations for Pitney Bowes, said the 
``regulations should encourage the Postal Service to adopt pricing 
incentives or work sharing discounts to fully reward mailer activity 
that reduces total postal system costs.'' Transcript of Wilmington 
Field Hearing, July 9, 2007, at 10. John Carper, Director of Mail and 
Receiving Services, Pepperdine University, claims that ``[worksharing] 
can flourish fully only if the discounts offered by the Postal Service 
* * * he costs that the Postal Service saves.'' Transcript of Los 
Angeles Field Hearing, June 28, 2007, at 39.
    In contrast, Advo, Inc. presents three reasons why ECPR should not 
be followed in setting rates under the PAEA:

    First, the statute does not permit consideration of factors 
other than compliance with price caps in the review process. Second, 
ECP, although useful in theory as a pricing tool, is not the only 
appropriate consideration in setting discounts and is susceptible to 
being misapplied. Third, adoption of ECP as the ``gold standard'' 
will inevitably and unnecessarily impinge on the Postal Service's 
pricing flexibility--a flexibility that is imperative to its ability 
to remain viable under the price cap regime.

Advo Reply Comments, July 3, 2007, at 6.

    MOAA, NAA, and the Postal Service recognize the importance of the 
ECPR, but contend that other, perhaps competing, factors are also 
important. Therefore, they believe that ECPR should not be a 
requirement for workshare discounts.
    The Commission strongly believes that efficient component pricing 
should be used as a guiding principle in establishing and maintaining 
workshare discounts. In both sections 3622(b) and 3622(c) the statute 
stresses the need for efficient rates and efficient component pricing 
is an established method of measuring efficient ratemaking. 
Nonetheless, the Commission recognizes that other factors must also be 
considered, and that the PAEA grants the Postal Service substantial 
flexibility in setting rates. However, in the interest of transparency 
and accountability, the Postal Service has a burden to explain how its 
rates, including workshare discounts, meet the objectives and factors 
of the PAEA.
    The Postal Service has proposed that when it files its notice of 
price adjustment, it will also file, for pre-existing workshare 
discounts, a comparison of the new (or unchanged) discount price with 
the historical, Commission reviewed cost avoidances of the last Annual 
Compliance Review, and will provide appropriate justification for any 
discount that exceeds those cost avoidances. Postal Service Comments, 
June 18, 2007, at 11. The proposed rules reflect this undertaking. To 
meet its burden of ensuring that the rates are in compliance with the 
objectives and factors of the PAEA, the Postal Service must also 
identify and explain any discounts that are substantially below the 
cost avoidances.
    The Postal Service is to provide with each notice of rate 
adjustment a schedule of the workshare discounts included in the 
proposed rates, together with a companion schedule listing underlying 
avoided costs, along with supporting workpapers. The avoided cost 
figures must be developed from the most recent PRC Annual Compliance 
Report. The Postal Service is to provide a separate justification for 
all proposed workshare discounts that exceed avoided costs. The Postal 
Service shall also identify and explain discounts that are set 
substantially below avoided costs, and explain any relationship between 
discounts that are above and those that are below avoided costs.
    In addition, when new workshare discounts are established, the 
Postal Service is to include with its filing a statement explaining its 
reasons for establishing the discount; provide all data, economic 
analyses, and other information believed to justify the discount; and 
certify, based on

[[Page 50750]]

comprehensive, competent analyses that the discount will not adversely 
affect either the rates or the service levels of users of postal 
services who do not take advantage of the discount.
    Lastly, the Postal Service is to provide a discussion of how the 
proposed rates will help achieve the objectives listed in 39 U.S.C. 
3622(b) and properly take into account the factors listed in 39 U.S.C 
3622(c).

G. Overview of Subpart C--Rules for Applying the Price Cap

    This subpart consists of nine rules related primarily to 
administration of the price cap mechanism. Proposed rule 3010.21 
addresses how to calculate the statutory annual inflation-based 
limitation. A question has arisen over the

* * * an annual limitation * * * equal to the change in the Consumer 
Price Index for All Urban Consumers unadjusted for seasonal 
variation over the most recent available 12-month period preceding 
the date the Postal Service files notice of its intention to 
increase rates.

39 U.S.C. 3622(d)(1)(A). (Emphasis added.)

    Two suggestions have emerged on this record, but commenters 
generally agree that both approaches are consistent with the statute. 
One is referred to as the ``point-to-point'' method and was initially 
suggested by the Postal Service and the OCA. The other is the ``running 
average'' or ``weighted average'' method which is incorporated in the 
proposed rules.
    JPMorgan Chase & Company (Chase) comments are representative. Chase 
urges the Commission to calculate the index adjustment based on a 12-
month average of CPI levels, rather than on a ``snapshot'' of year-
over-year changes to the CPI between a single pair of beginning and end 
dates. It reasons:

    While the two approaches should achieve similar results over the 
long run, the use of the twelve-month average is likely to produce a 
much less bumpy and volatile path along the way by damping the 
short-term oscillations in the CPI index. For Chase and other 
mailers that operate on an annual budget cycle--i.e., for the 
mailers that generate most of the Postal Service's volume, reducing 
the short-term unpredictability of cost increases is extremely 
important.

Emens Testimony at 5.\11\

    \11\ Testimony of Daniel C. Emens on Behalf of JPMorgan Chase & 
Co., July 9, 2007 (Emens Testimony).
---------------------------------------------------------------------------

    Many parties commented that they prefer the moving average method 
because it provides more predictability and stability in rates. NAA 
states, the average method ``better advance[s] the statutory objective 
of creating `predictability and stability in rates' while promoting 
transparency in rates and assuring that the Postal Service is 
financially sound.'' NAA Comments, June 18, 2007, at 2. See also Advo 
Comments, June 18, 2007, at 2; Advo Reply Comments, July 3, 2007, at 1; 
GCA Reply Comments, July 3, 2007, at 1-2; Pitney Bowes Reply Comments, 
July 3, 2007, at 3; and PostCom Reply Comments, July 3, 2007, at 2.
    Contrary to these views, OCA states that the point method ``does 
not result in significantly less rate stability and predictability.'' 
OCA Reply Comments, July 3, 2007, at 6. It contends that the moving 
average method ``would have substantial lags in the updating of 
rates.'' OCA Initial Comments, June 18, 2007, at 7. See also Valpak 
Comments, June 18, 2007, at 5; and OCA Reply Comments, July 3, 2007, at 
2-4.
    The Postal Service expressed concern that using the moving average 
method includes 24 months of data rather than 12. USPS states, ``It is 
arguable that calculating the price cap by reference to CPI-U data over 
a 24-month period is counter to the statutory requirement that the CPI 
calculation be ``equal to'' the change in CPI-U ``over the most recent 
available 12-month period.'' Postal Service Comments, June 18, 2007, at 
3-4. APWU also believes that the point method better adheres to the 
plain language of the PAEA. APWU Comments, June 18, 2007, at 2-3. APWU 
and Valpak advocate the point method as providing more transparency and 
less administrative burden. APWU Comments, June 18, 2007, at 2; and 
Valpak Comments, June 18, 2007, at 4-5.
    The majority of commenters are satisfied that both the moving 
average method and point method meet the statutory requirements of the 
PAEA. MOAA states, ``The provisions of [the] PAEA are sufficiently 
broad that either the [moving average method] or the [point method] 
could be used for the purpose of calculating the CPI cap limitation as 
set forth in 3622 (b), (c) and (d).'' MOAA Comments, June 18, 2007, at 
1. See also GCA Comments, June 18, 2007, at 2; Advo Comments, June 18, 
2007, at 2; PostCom Comments, June 18, 2007, at 2; and Pitney Bowes 
Comments, June 18, 2007, at 2.
    The Commission proposes to use the moving average method of 
calculating the CPI-U limitation. This method provides mailers with 
stable and predictable rates, and also grants the Postal Service the 
same benefits. The moving average method does not impose any undue 
administrative burden on the Postal Service and does not inhibit 
transparency. The Commission finds the increased predictability and 
stability resulting from use of the moving average method are quite 
valuable, and directly further the specific objectives of the PAEA. The 
Commission derives the moving average method from Bureau of Labor 
Statistics (BLS) monthly CPI-U values. At the end of each calendar 
year, BLS calculates the annual percentage change between two years as 
the percentage change between the two years' annual averages. The only 
difference in methodology is that BLS applies this methodology to 
calendar years, and the Commission will apply it to 12-month periods.
    Calculation of the annual limitation in this method involves three 
steps. First, a simple average CPI-U index (Recent Average) is 
calculated by summing the most recently available 12 monthly CPI-U 
values from the date the Postal Service files notice of its intentions 
to increase rates, and dividing the sum by 12. Then, a second simple 
average CPI-U index (Base Average) is similarly calculated by summing 
the 12 monthly CPI-U values preceding those used in the Recent Average 
calculation and dividing the sum by 12. Finally, the percentage change 
between the Recent Average and the Base Average is computed, using the 
following formula: Annual Limitation (Moving Average Method) = (Recent 
Average/ Base Average) - 1.
    Example 1 illustrates the annual limitation calculation, using the 
moving average method, assuming that the Postal Service had filed a 
hypothetical notice of its intentions to increase rates during the 
third week of April 2006.\12\
---------------------------------------------------------------------------

    \12\ All CPI-U data is obtained from the BLS Web site at: http://data.bls.gov/cpi-bin/surveymost.

---------------------------------------------------------------------------

[[Page 50751]]

[GRAPHIC] [TIFF OMITTED] TP04SE07.000

    Example 1 assumes that rate filings are 12 months apart; that is, 
that the Postal Service filed its most recent previous notice for a 
rate increase in April 2006. This assumption can be adjusted in two 
ways depending on when the Postal Service files a notice of rate 
adjustment.
    The first adjustment occurs when the Postal Service files a notice 
of rate adjustment less than one year after the previous adjustment. In 
this instance, if the calculation were to use 12 months of data, the 
Postal Service would benefit from double counting months of CPI data. 
This would violate the statutory limitation. To remedy this problem, a 
partial year limitation is calculated.
    Example 2 calculates a partial year limitation. First, a simple 12-
month average must be calculated using the most recently available 12 
months of CPI-U data from the BLS Web site (Recent Average). Then the 
partial year limitation is calculated by dividing the Recent Average by 
the Recent Average from the most recent previous notice and subtracting 
1. The formula is as follows: Partial Year Limitation = (Recent 
Average/Recent Average from most recent previous notice) - 1.
    Still assuming that the Postal Service filed its first notice of 
rate adjustment in April of 2006 (Example 1), assume now that the 
Postal Service files its second hypothetical notice of rate adjustment 
in October 2006 (six months later). Example 2 shows how the partial 
year limitation will be calculated for the October 2006 rate 
adjustment.

[[Page 50752]]

[GRAPHIC] [TIFF OMITTED] TP04SE07.001

    A corresponding adjustment can be made should the Postal Service 
file a notice of rate adjustment more than 12 months after the last 
adjustment. This scenario provides no reason to alter the calculation 
of the annual inflation-based limitation, but does present a different 
concern; there are several months of CPI-U changes that the Postal 
Service may lose. The clear intent of the statutory provision allowing 
for recapture of unused rate authority is to encourage the Postal 
Service to whenever possible refrain from imposing the maximum 
permissible rate increases. If the Postal Service can delay imposing 
increases on the public, it should not be penalized. See proposed rule 
3010.26(c). To address this concern, the interim unused rate authority 
will be added to the cumulative unused rate authority.
    Still assuming that the Postal Service filed its first notice of 
rate adjustment in April 2006 (Example 1), assume now that the Postal 
Service files its second hypothetical notice of rate adjustment in July 
2007 (15 months later). Example 3 illustrates how the price cap will be 
calculated for the July 2007 notice of rate adjustment, along with the 
calculation of the three months of interim unused rate authority. To 
calculate interim unused rate authority, divide the Base Average of the 
current notice by the Recent Average of the last notice and subtract 1. 
The formula to calculate the amount of interim unused rate authority is 
as follows: Interim Unused Rate Authority = (Base Average for Current 
Notice/ Recent Average for Last Notice) - 1.

[[Page 50753]]

[GRAPHIC] [TIFF OMITTED] TP04SE07.002

    APWU argues for cross-class application of unused rate authority 
and recommends a method of weighting the revenue. This cross-class 
application of unused rate authority would grant the Postal Service the 
ability to use unused rate authority from one class, and apply it to 
other classes of mail in later years. APWU Comments, April 6, 2007, at 
9-10. Several parties assert that this would (1) be at odds with 
section 3622(d)(2)(C), which states that the annual limitations shall 
apply to a class of mail and defines unused rate authority in terms of 
an individual class of mail; (2) be inconsistent with the legislative 
history; and (3) merge multiple class-specific baskets into a single 
basket. See ANM/MPA Reply Comments, May 7, 2007, at 3-6; ANM/NAPM/NPPC 
Reply Comments, May 7, 2007, at 9-11; MOAA Reply Comments, May 7, 2007, 
at 11; Pitney Bowes Comments, April 6, 2007, at 9; and USPS Reply 
Comments, May 7, 2007, at 16.
    The Commission agrees that unused rate authority for a given class 
of mail may only be applied to the class where it originated.
    Finally, The McGraw-Hill Companies, Inc. (McGraw-Hill) suggests 
that the rules should include a method to reduce the price cap if the 
Postal Service performance levels deteriorate, or if the Postal Service 
places costly mail preparation requirements on mailers. See McGraw-Hill 
Reply Comments, July 30, 2007, at 6-7. During the Kansas City field 
hearings, witness Stumbo of Meredith Corporation expressed a similar 
concern:

    We would submit that the critical issues regarding cost shifting 
and service reduction are [sic] the rate-setting process must 
contain a mechanism to adjust rates to reflect the shift in cost 
from the Postal Service to private industry. In addition, the rules 
should contain methodology to adjust rates to reflect the diminished 
level of service the imposition of preparation rule changes or other 
means.

Transcript of Kansas City Field Hearing, June 22, 2007, at 40.

    No commenter has suggested a method for applying such adjustments. 
The Commission is sympathetic to these concerns, yet finds the better 
course is to defer such considerations. The statute establishes a 
system of accountability through increased transparency. The Commission 
is developing separate rules providing for annual Postal Service 
reports that will include data on service achievement. Additionally, 
proposed rule 3020.91 requires the Postal Service to inform the 
Commission of changes that would alter the nature of a product through 
the imposition of preparation rule changes.
    The Commission expects that the Postal Service will operate within 
both the letter and the spirit of the PAEA. For now, it is best to 
presume that the Postal Service will do so. If experience shows that 
additional regulations in this area are necessary to achieve the 
objectives of the legislation, the Commission is obligated to develop 
such regulations, or

[[Page 50754]]

recommend to Congress appropriate additional legislation.
    Test for compliance with the annual limitation. Proposed rule 
3010.20 states that the appropriate annual limitation shall be applied 
to a measure of the rates paid by mail sent in each class for which 
rate adjustments are to be made to determine whether planned rates are 
consistent with the annual limitation.
    39 U.S.C. 3622(d) requires that the system for regulating rates and 
classes for market dominant products include a limitation on the 
percentage increase in rates. To calculate the percentage change in an 
individual rate is a simple matter, but section 3622(d)(2)(A) 
stipulates that the restriction be applied at the class level. 
Therefore, to determine compliance in the context of a pre-
implementation compliance review of a notice of rate adjustment, it is 
necessary to develop rules that provide a means of calculating the 
aggregate percentage change in rates for each class. To accomplish 
this, weights (in the form of billing determinants) must be applied to 
the set of rates that comprise a class.
    Postal Service proposal. The Postal Service proposes to apply the 
most recent available billing determinants to the current rates, then 
apply the same billing determinants to the new rates and compare the 
resulting revenues to determine the change in rates for a class. As 
acknowledged by the Postal Service, this is not ideal because an annual 
rate cycle combined with the need for advance notice dictates that the 
billing determinants will not correspond to a single set of rates, but 
will reflect mailer behavior for part of a year at the current rates 
and part at the previous rates. Postal Service Reply Comments, May 7, 
2007, Appendix C. Rather than debating the rates (current or new) to 
which the ideal billing determinants would correspond, the parties' 
comments have focused on more practical considerations regarding the 
use of historical billing determinants instead of forecast billing 
determinants.
    Parties' positions. On this, there is near universal support for 
the Postal Service's proposed approach, or some slight variation 
thereof. Pitney Bowes, OCA, MOAA, ANM/MPA, APWU, PostCom, Advo, and 
JPMorgan/Chase all support the use of historical billing determinants 
as weights in their comments. The primary rationale for this position 
is that historical data are far less likely to be controversial than 
forecasts, and given the limited time and public participation for the 
review of notices of rate adjustment, simplicity and speed of analysis 
should take precedence.
    There is some disagreement regarding the treatment of 
classification changes and negotiated service agreements. The Postal 
Service proposes to make adjustments to the historical billing 
determinants to incorporate the effects of classification changes, such 
as the creation or elimination of rates. It proposes to use known mail 
characteristics and reasonable judgments to make the necessary 
adjustments. See Postal Service Comments, June 18, 2007, at 7-10, inter 
alia. This proposal is supported by MOAA. See also MOAA Comments, April 
6, 2007 at 4-5; ANM/MPA Comments, May 7, 2007, at 1-2; and APWU 
Comments, June 18, 2007, at 3-4.
    PostCom takes the position that the effects of classification 
changes are outside the scope of the Commission's pre-implementation 
review of a notice of rate adjustment. It argues that the effects of 
such changes on compliance with the price cap may only be determined in 
a post hoc review of the new rates. PostCom concludes that, ``any 
attempt by the Commission to assess the effects of a change in rate 
design at the time that the change is proposed will entail a re-
introduction of the old cost of service methods that the Commission has 
used under the Postal Reorganization Act, including the attempt to 
establish a test year, the reintroduction of roll-forwards and volume 
and revenue forecasts, and all of the uncertainty, controversy and 
confusion that these methods entail.'' PostCom Comments, June 18, 2007, 
at 4-5.
    Commission analysis. The Commission's proposed rules calculate the 
percentage change in rates using the most recent available billing 
determinant as weights. As many parties point out, any attempt to 
develop a forecast of billing determinants would likely be 
controversial and complex, and a worthwhile analysis and resolution 
cannot realistically be achieved in the context of a pre-implementation 
review under section 3622(d)(1)(C).
    The rules also instruct the Postal Service to make reasonable 
adjustments to the billing determinants to account for the effects of 
classification changes. The Postal Service has stated that such 
adjustments will typically be straightforward and based on known mail 
characteristics. Any adjustments are to be fully explained by the 
Postal Service at the time of the notice.
    The Commission recognizes that the pre-implementation method of 
calculating the percentage change in rates in the proposed rules is not 
a perfect measure of what the actual change in rates will be. The 
billing determinants to be used will likely not correspond to a single 
set of rates, and adjustments for classification changes will be 
imperfect. Some commenters suggest that the after-the-fact review will 
be the most effective means of ensuring compliance with the rate cap. 
Id. at 4-6; see also Transcript of Wilmington Field Hearing, July 9, 
2007, at 47. (Emens).\13\ The statute requires the Commission to 
monitor the effectiveness of these rules and consider modifications to 
improve their effectiveness as events warrant.
---------------------------------------------------------------------------

    \13\ See also Campbell James, An Analysis of Provisions of the 
Postal Accountability and Enhancement Act Relating to the Regulation 
of Postal Rates and Services. August 3, 2007, at 52-55.
---------------------------------------------------------------------------

    Proposed rule 3010.23, captioned ``Calculation of percentage change 
in rates,'' explains in paragraph (b) that for each class of mail, the 
percentage change in rates is calculated in three steps. The first step 
involves multiplying the volume of each rate cell in the class by the 
current rate for that cell and summing the resulting products. (In the 
case of seasonal or temporary rates, the most recently applied rate 
shall be considered the current rate.) The second step involves 
multiplying the same set of rate cell volumes by the corresponding 
planned rate for each cell and summing the resulting products. The 
third step involves calculating the percentage change in rates by 
dividing the results of the first step by the results of the second 
step and subtracting 1 from the quotient. The result is expressed as a 
percentage. Paragraph (c) sets out the formula.
    Treatment of volume associated with negotiated service agreements. 
Advo and Pitney Bowes advocate the exclusion of negotiated service 
agreements from the determination of percentage changes in rates. They 
assert that including the lower rates offered to negotiated service 
agreement partners will allow for offsetting larger increases for non-
negotiated service agreement mail, thus undermining the price cap 
protection afforded to non-participating mailers. See Advo Comments, 
June 18, 2007, at 4; Pitney Bowes Comments, June 18, 2007, at 4. The 
Postal Service disagrees, arguing that in certain situations, some 
negotiated service agreement mailers may pay prices higher than list 
prices. If this occurs, excluding negotiated service agreements from 
the calculation of change in revenue would deny non-negotiated service 
agreement mailers the opportunity for potentially lower

[[Page 50755]]

increases. Postal Service Reply Comments, July 3, 2007, at 6-7.
    The proposed rules exclude the effects of negotiated service 
agreements from the calculation of percentage change in rates. The 
foundational argument in support of negotiated service agreements is 
that they can be structured to benefit the participating mailer and the 
Postal Service, while not harming (and hopefully, benefiting) non-
participating mailers. Pitney Bowes and Advo are correct in their 
conclusion that including negotiated service agreements in the test for 
compliance with the rate cap may lead to rates for non-participating 
mailers that exceed the rate cap. This would undermine the rationale 
for permitting negotiated service agreements.
    Proposed section 3010.24 addresses volume associated with 
negotiated service agreements. Paragraph (a) provides that mail volumes 
sent at non-tariff rates under negotiated service agreements are to be 
included in the calculation of percentage change in rates as though 
they paid the appropriate rates of general applicability. Where it is 
impractical to identify the rates of general applicability, the volumes 
associated with the mail sent under the terms of the negotiated service 
agreement shall be excluded from the calculation of percentage change 
in rates. Paragraph (b) requires related support in the form of 
identification and explanation of all assumptions made with respect to 
the treatment of negotiated service agreements in the calculation of 
the percentage change in rates and the rationale for assumptions.
    Limit on application of banking exception. Proposed rule 3010.25 
addresses certain limits on unused rate adjustment authority. It 
provides that these adjustments may only be applied together with 
inflation-based limitation rate adjustments or when inflation-based 
limitation rate adjustments are not possible. It further provides that 
unused rate adjustment authority may not be used in lieu of an 
inflation-based limitation rate adjustment.

H. Overview of Subpart D--Rules for Rate Adjustments for Negotiated 
Service Agreements (Type 2 Rate Adjustments)

    Section 3622(c)(10) of the PAEA requires consideration of the 
desirability of special classifications for both postal users and the 
Postal Service. Subsections 3622(c)(10)(A) and (B) mandate that such 
agreements must improve the net finances of the Postal Service or 
enhance operational performance while not causing unreasonable harm to 
the marketplace. Section 3622(d)(1)(C) further details the review 
period that will begin ``not later than 45 days before the 
implementation'' of any agreement made under subsection (c)(10). These 
subsections of the PAEA provide the basis and criteria for evaluating 
and approving negotiated service agreements.
    In their comments, parties have expressed a range of views on how 
the Commission should implement the legislative framework for 
negotiated service agreement regulation. The level of review described 
in these diverse comments can be summarized into two groups: Parties 
who consider the current negotiated service agreement process amenable 
with the PAEA, and parties who assert that the PAEA calls for a 
significantly streamlined process.
    Parties who support a continuation of the current process, and in 
some instances, the regulations as currently written, include Valpak, 
NAA, Jon Mulford Associates, and APWU. This viewpoint was summarized by 
NAA, stating

[t]he Commission should continue to adhere to its established, 
balanced approach to considering special classifications in the form 
of negotiated services agreements or niche classifications. This 
includes conducting a thorough public and prior review, which 
results in a determination that the proposed mailer-specific 
agreement may or may not take effect. In keeping with the new 
statutory approach giving the Commission the final say, that 
determination should be subject to judicial review.

NAA Reply Comments, May 7, 2007, at 13.

    Parties supporting a simplified and minimal review of negotiated 
service agreements include Advo, Discover Financial Services, LLC 
(DFS), MOAA, Pitney Bowes, and Time Warner. This viewpoint was 
summarized by Pitney Bowes stating, ``The elimination of advance, on-
the-record Commission review of NSAs should significantly enhance the 
Postal Service's ability to meet the needs of mailers * * *.'' Pitney 
Bowes Reply Comments, May 7, 2007, at 13.
    The Commission finds that the statute requires a regulatory 
approach that combines elements of the divergent views among parties. 
The legislation seeks to provide the Postal Service with added 
flexibility to enhance producer and consumer surplus through negotiated 
service agreements. The proposed rules will decrease the administrative 
and economic burden in implementing such agreements. However, arguments 
such as those presented in the comments of Jon Mulford, stating ``[t]he 
Commission should insure that periodic audits verify that claimed 
benefits persist through the duration of the NSA'' also reflect the 
policies of the PAEA. See Jon Mulford Associates Comments, March 14, 
2007, at 4. Combining flexibility and accountability is the essence of 
the new legislation, and the Commission attempts to achieve the proper 
balance in the subpart D rules.
    This subpart consists of four rules. Proposed rule 3010.40 
expresses the Commission's objective in administering the 
implementation of negotiated service agreements. It clarifies that this 
objective is directly tied to statutory requirements in 39 U.S.C. 
3622(c)(10) mandating that special classifications either improve the 
net financial position of the Postal Service or enhance the performance 
of operational functions and do not cause unreasonable harm to the 
marketplace.
    Timing of notice and review. Proposed rule 3010.41 addresses 
procedures. Paragraphs (a)(1) and (2) reflect the requirements for Type 
2 changes that public notice and notice to the Commission occur not 
later than 45 days prior to the intended rate implementation date.
    Contents of filing. Proposed rule 3010.42 addresses the contents of 
a notice in support of a negotiated settlement agreement. It indicates 
that this should include, at a minimum, a copy of the negotiated 
service agreement and a statement identifying all parties and a 
description explaining the operative components. It is also to include 
the estimated mailer-specific costs, volumes and revenues of the Postal 
Service absent the implementation of the agreement; the estimated 
mailer-specific costs, volumes and revenues of the Postal Service which 
result from implementation; and an analysis of the effects of the 
agreement on the contribution to institutional costs from mailers not 
party to the agreement. If mailer-specific costs are not available, the 
source and derivation of the costs that are used shall be provided, 
together with a discussion of the currency and reliability of those 
costs, and their suitability as a proxy for the mailer-specific costs.
    The Postal Service is also to identify each component of the 
agreement expected to enhance the performance of mail preparation, 
processing, transportation or other functions in each year of the 
agreement, and a discussion of the nature and expected impact of each 
such agreement. Furthermore, it is to provide details regarding any and 
all actions to assure that the agreement will not result in 
unreasonable harm to the marketplace.

[[Page 50756]]

    Finally, the Postal Service is to collect and provide annual data 
that are intended to enable the Commission and interested persons to 
evaluate whether each negotiated service agreement has met, and is 
likely to meet in the future, the expectations that caused the Postal 
Service to enter the agreement. It is understood that not every 
agreement will meet Postal Service expectations. Nonetheless, 
continuing periodic review is the best way to assure that flaws in 
Postal Service projection techniques are recognized and remedied.

I. Overview of Subpart E--Rules for Rate Adjustments in Exigent 
Circumstances (Type 3 Rate Adjustments)

    The PAEA also requires that the Commission establish procedures to 
allow rate adjustments in excess of the annual limitation on an 
expedited basis due to either extraordinary or exceptional 
circumstances, provided:

[T]here is not sufficient unused rate authority as defined in 39 
U.S.C. 3622(d)(2)(C); and

[T]he Commission determines, after notice and opportunity for a 
public hearing and comment, and within 90 days after any request by 
the Postal Service, that such adjustment is reasonable and equitable 
and necessary to enable the Postal Service, under best practices of 
honest, efficient, and economical management, to maintain and 
continue the development of postal services of the kind and quality 
adapted to the needs of the United States.

See 39 U.S.C. 3622(d)(1)(E).
    There are several significant differences between a Type 3 change 
and the other three types. First, based on the legislative history, a 
Type 3 change is expected to be an atypical occurrence, while the other 
types are considered more routine. Types 1-A, 1-B and 2 changes follow 
the streamlined 45-day notice-and-review process, while a Type 3 filing 
occurs pursuant to a request and a hearing, with up to 90 days for 
consideration.
    Commenters addressing implementation of the exigency clause in 39 
U.S.C. 3622(d)(1)(E) focus mainly on the extent to which Commission 
rules should define ``exigent circumstances'' for purposes of rate 
adjustments; the related possibility, if the definition is too broad, 
that frequent requests for exigent increases could undermine the 
intended discipline of the price cap mechanism; and the nature and 
extent of public participation in exigent request filings.
    The Postal Service describes the PAEA's exigency clause as a safety 
valve for those ``extraordinary or exceptional situations in which the 
[price] cap cannot be met even through honest, efficient, and 
economical management.'' Postal Service Comments, April 6, 2007, at 16. 
It does not address the content of an exigent rate filing or the role 
of the public, but asserts, with respect to defining exigent 
circumstances, that it is not necessary or prudent for the Commission 
to attempt to specify in this rulemaking the situations that might be 
covered in advance of an actual need to do so. Postal Service Reply 
Comments, May 7, 2007, at 15.
    Pitney Bowes and Time Warner share the Postal Service's view that 
the Commission should not attempt to define qualifying circumstances at 
this time. Pitney Bowes suggests addressing the question on a case-by-
case basis as circumstances arise. Pitney Bowes Comments, April 6, 
2007, at 10. Similarly, Time Warner says:

    * * * the Commission need not and should not attempt to 
determine a substantive standard for granting Postal Service 
requests under the exigent circumstances provision (other than the 
standard set out in Sec.  3622(d)(1)(E) itself) until presented with 
the concrete circumstances attending an actual Postal Service 
request under that provision; the kind of judgment that the 
Commission is called on to make in deciding whether to grant such a 
request cannot be exercised well in the abstract or upon 
hypotheticals; moreover, to the extent that such a standard might 
err on the side of leniency, it would undermine the discipline that 
the price caps are intended to instill, and to the extent that it 
might err on the side of stringency, it could create perverse 
incentives to find alternative ways of circumventing the caps.

Time Warner Comments, April 6, 2007, at 22-23.
    Several other commenters echo Time Warner's concern about the 
relationship between the exigency clause and the price cap mechanism. 
The Alliance of Nonprofit Mailers, National Association of Presort 
Mailers, and National Postal Policy Council jointly state: ``* * * the 
exigency provision for ``extraordinary or exceptional'' services must 
be drawn very narrowly; otherwise the availability of this mechanism 
will undermine the index as a constraint on costs and efficiency.'' 
ANM/NAPM/NPPC Comments, April 6, 2007, at 2 and 11; see also ANM/NAPM/
NPPC Reply Comments, May 7, 2007, at 8. They urge the Commission to 
make it clear that exigent financial consequences should have to be 
large enough to threaten the Postal Service's financial integrity, and 
must not be due to an unreasonable failure to hedge and insure against 
risk or any other form of inefficient or uneconomical management. ANM/
NAPM/NPPC Comments, April 6, 2007, at 11. Randy Stumbo, representing 
Meredith Corporation, says: ``An easy out provided by a liberal 
exigency provision would seriously damage the cost control incentive 
created by a rate cap.'' Stumbo Testimony at 3.\14\
---------------------------------------------------------------------------

    \14\ Testimony of Randy Stumbo, Director of Distributoin and 
Postal Affairs for Meredith Corporation, Postal Regulatory 
Commission Field Hearing, Kansas City, June 22, 2007 (Stumbo 
Testimony).
---------------------------------------------------------------------------

    Don Hall, Jr., representing Hallmark, also cautions: ``* * * [I]f 
the exigency provision is over-used, mail users in all classes will 
have to conclude that the price cap scheme is not going to succeed--
and, as the Act also provides, after 10 years this Commission will have 
to devise something better.'' Hall Testimony at 7.\15\
---------------------------------------------------------------------------

    \15\ Testimony of Don Hall, Jr., President and CEO, Hallmark 
Cards, Inc., June 22, 2007 (Hall Testimony).
---------------------------------------------------------------------------

    Mr. Hall also asserts that it is imperative that the Commission 
clarify what circumstances warrant the rate cap to be pierced and to 
make certain that the Postal Service exhaust all other resources 
provided by its ability to retain earnings before seeking rate 
increases above the cap. Id. at 12.
    Mr. Stumbo seeks more specific direction, as he suggests:
    While it seems premature and imprudent to explicitly define in 
the abstract the events under which exigency may be exercised, it is 
necessary to define what it is not. Attributable cost shortfalls at 
the class or subclass level do not constitute exigent circumstances. 
Nor should the exigency clause be used to re-apportion rates in any 
way.

Stumbo Testimony at 3.

    The Magazine Publishers Association (MPA) and the Alliance of 
Nonprofit Mailers (ANM) agree that the failure of a class to cover its 
attributable costs should be affirmatively identified as not qualifying 
as an exigent circumstances. ANM/MPA Comments, April 6, 2007, at 11-12. 
Time Warner, however, claims that the Commission need not and should 
not decide that failure of a class to recover attributable costs could 
never constitute exigent circumstances justifying above-cap increases. 
Time Warner Reply Comments, May 2, 2007, at 33.
    The Greeting Card Association (GCA) suggests that the Commission 
could clarify the scope of the exigency clause by defining 
``extraordinary or exceptional circumstances'' to exclude matters that, 
under the Postal Reorganization Act of 1970, would have been dealt with 
under the provision for contingencies. GCA Comments, April 6, 2007, at 
9. It says the Commission should provide guidance on how the nature of 
the ``extraordinary or exceptional'' circumstances motivating the 
adjustment relates to the allocation

[[Page 50757]]

of burdens among mail users. Id. at 11-12. GCA also concludes, after 
addressing the potential impact of external and internal events, that 
the Commission:

    * * * should make clear in setting up the subparagraph (E) 
[exigency clause] procedures that the Postal Service, in first 
presenting its proposed adjustment, must explain fully (i) the 
nature of the extraordinary or exceptional circumstances claimed to 
justify the rate change, and (ii) the theory on which it considers 
its proposed rate changes appropriate to reflect (i).

Id. at 13. Moreover, it asserts that this explanation should be 
required to be part of the initial filing, as the Commission must make 
its required findings in 90 days or less. Id.
    Commenters differ on the nature and extent of public comment. Advo, 
for example, simply notes, in contrasting the types of public input 
called for in the PAEA, that the statute requires that the Commission 
provide ``notice and opportunity for public hearing and comment,'' but 
does not address the nature and scope of the public hearing. Advo 
Comments, April 6, 2007, at 5. GCA and Time Warner note that the PAEA 
provides an opportunity for public participation when the Postal 
Service files an exigent request, but do not contend that this mandates 
formal trial-type hearings. GCA, instead, asserts that the procedures 
must provide ``some opportunity'' for parties to raise challenges to 
the bases of the proposed increase, and that the Postal Service must 
overcome such challenges to meet the burden of justifying exigent 
increases. GCA Comments, April 6, 2007, at 14-15. Others suggest that 
the PAEA's reference to an ``opportunity for public participation and 
comment'' means that the Commission must establish trial-type 
proceedings for exigent requests. See, for example, ANM/NAPM/NPPC 
Comments, May 7, 2007, at 11.
    Discussion. The Commission appreciates commenters' concerns that 
the exigency clause, if invoked too frequently, could undermine the 
statutory price cap mechanism. At this point, it should be assumed that 
the Postal Service's intent is to honor the clear import of the PAEA's 
overarching ratesetting philosophy that exigent requests are meant to 
be a safety net for dealing with unforeseeable emergencies. The 
Commission believes that the commenters' concerns can largely be 
addressed by requiring, as proposed rule 3010.61 does, that the Postal 
Service provide focused explanation in support of any exigent request. 
This includes a full discussion of the circumstances giving rise to the 
filing, the reasons why the requested increases are necessary, and why 
the specific proposed increases are reasonable and equitable as between 
the types of users of market dominant products. The Postal Service will 
be required to provide considerable additional context, such as an 
explanation of how long the exigent increases are intended to be in 
effect, the circumstances under which rescission of the increases might 
occur, a justification addressing the foreseeability or avoidability of 
the circumstances giving rise to the request, and other information 
that would assist the Commission in reaching a decision. The Commission 
reserves the right, in proposed rule 3010.62, to require the Postal 
Service to clarify or further supplement its request. These provisions 
do not explicitly define ``exigent circumstances,'' and unmistakably 
convey the message that exigent requests are indeed ``extraordinary or 
exceptional.''
    The proposed rules provide that upon receipt of an exigent request, 
the Commission will conduct an expedited review, including a public 
hearing, that allows for resolution within 90 days. The rulemaking 
record is relatively slim on this aspect of PAEA implementation, 
perhaps due to the focus on filings considered more routine. The 
Commission has carefully considered the nature and extent of public 
input for exigent requests, and preliminarily has concluded that while 
the PAEA would not preclude reviving the trial-type proceedings that 
held sway in the past, it also does not require them. The fact that the 
statute does not explicitly refer to a hearing ``on the record,'' which 
is universally associated with trial-type hearings under the 
Administrative Procedure Act (APA), provides support for this 
conclusion. The drafters were well aware that the system they were 
replacing had included APA-style formal proceedings, and could have 
mandated equivalent proceedings for exigent requests by including an 
unmistakable reference to ``on the record'' proceedings, but did not. 
Additional support is drawn from the period of time (90 days) allowed 
for review, which is inconsistent with overly-elaborate hearings; and 
as the Postal Service and some joint commenters suggest, the likelihood 
that issues will not simply require adjudication of facts, but also may 
involve significant policy considerations. Given these considerations, 
the Commission proposes a written process, without cross-examination, 
to facilitate public participation, coupled with public hearings at 
which one or more responsible Postal Service official would appear for 
questioning by the Commission. This mechanism strikes an appropriate 
balance between assuring transparency and accountability in keeping 
with the statute, while facilitating completion of review within 90 
days. These provisions appear in proposed subpart E.

III. Competitive Products

    Subchapter II of chapter 36 of 39 U.S.C., 39 U.S.C. 3631-34, sets 
forth the provisions applicable to competitive products, which, 
pursuant to Sec.  3631(a), initially include priority mail, expedited 
mail, bulk parcel post, bulk international mail, and mailgrams.\16\ 
Section 3631(c) provides that ``[m]ail matter referred to in [Sec.  
3631(a)] shall, for purposes of this subchapter, be considered to have 
the meaning given to such mail matter under the mail classification 
schedule.'' In Order No. 15, the Commission solicited the parties' 
views on ``mail matter'' comprising each of the foregoing types of mail 
and on the meaning of the phrase ``mail classification schedule.'' PRC 
Order No. 15, May 17, 2007, at 6. Several parties addressed these 
issues. See, e.g., Postal Service Comments, June 18, 2007, at 11-16; 
UPS Comments, June 18, 2007, at 2-4; OCA Comments, June 18, 2007 at 22-
27; and PSA Comments, June 18, 2007, at 1-3.
---------------------------------------------------------------------------

    \16\ Pursuant to section 3642, the Commission may change the 
lists of competitive products under section 3631 and market dominant 
products under section 3621 by adding new products to or removing 
products from the lists, or transferring products between the lists.
---------------------------------------------------------------------------

A. Mail Classification Schedule

    OCA and UPS contend that ``mail classification schedule'' as used 
in section 3631(c) refers to the Domestic Mail Classification Schedule 
(DMCS).\17\ For several reasons, the Commission is not persuaded by 
this construction. First, section 3631(a) includes mail matter not 
subject to the DMCS, i.e., bulk international mail. Second, when 
Congress intended that the DMCS be used, it was specific. See section 
3622(d)(2)(A), applying the price cap limit to ``a class of mail, as 
defined in the Domestic Mail Classification Schedule as in effect on 
the date of enactment of the [PAEA].'' Thus, the failure to specify the 
DMCS in section 3631(c) suggests that something else is intended. 
Third, while the DMCS may be useful in initially determining mail 
matter comprising the competitive products, the mail classification

[[Page 50758]]

schedule has a continuing, if somewhat new, role under the statute. 
Among other things, the mail classification schedule incorporates 
international mail (both single-piece and bulk) and is subject to 
section 3642, which authorizes the Commission to modify the makeup of 
competitive and market dominant products.
---------------------------------------------------------------------------

    \17\ OCA Comments, June 18, 2007, at 23; UPS Comments, June 18, 
2007, at 2.
---------------------------------------------------------------------------

    The Postal Service recognizes that the PAEA contemplates a mail 
classification schedule, suggesting that it would contain ``a level of 
detail equivalent to the current DMCS,'' with additional language added 
to account for international mail. Postal Service Comments, June 18, 
2007, at 16. The Postal Service advocates that separate classification 
schedules be established for market dominant and competitive products. 
Id.
    In supplemental comments, the Postal Service offers its views on 
what it calls the classification process.\18\ Regarding competitive 
products, it argues that the Commission has no role in developing or 
overseeing the mail classification schedule other than determining, 
pursuant to section 3642, what products are in the competitive category 
of mail. Id. at 14. The Postal Service asserts that ``the Governors 
will maintain the ``Competitive Products Classification Schedule,''' 
with changes made pursuant to section 3632(b). Id. The Commission 
interprets its responsibilities under the PAEA differently, concluding 
that the mail classification schedule falls within its purview.
---------------------------------------------------------------------------

    \18\ Postal Service Supplemental Comments, June 19, 2007. The 
bulk of these comments relate to market dominant products, with the 
Postal Service suggesting a framework for classification changes and 
development of a mail classification schedule. Id. at 1-14.
---------------------------------------------------------------------------

    The Postal Service states that ``the PAEA clearly vests 
classification authority with the Governors[.]'' Id. To a point, this 
statement is unobjectionable. Notably, however, it overlooks 
limitations on the Governors' authority, namely, that it is subject to 
subchapter II (of chapter 36 of title 39) and regulations promulgated 
by the Commission under section 3633. Moreover, the Governors' 
authority to change rates or classes (pursuant to section 3632) cannot 
reasonably be read to encompass the wholly separate power to develop 
and maintain a mail classification schedule for competitive products. 
If the Governors were intended to have such authority, there would be 
no reason for the process mandated by section 3631 or for subjecting 
the Governors' authority to change rates or classes to the Commission's 
regulations. Nor would there be any reason for the separate provision, 
section 3642, for establishing new products.
    Section 3631(a) identifies the initial list of competitive mail 
matter, including priority mail, expedited mail, bulk parcel post, and 
bulk international mail.\19\ None of these terms is defined in the 
statute. To establish what each of the foregoing means section 3631(c) 
instructs that the ``[m]ail matter referred to in subsection (a) shall, 
for purposes of this subchapter, be considered to have the meaning 
given to such mail matter under the mail classification schedule.'' 
Pursuant to this rulemaking, the Commission will identify the mail 
matter, including the products, in the (competitive) mail 
classification schedule that initially comprise each type of mail 
listed in section 3631(a). This process is integral to the Commission 
fulfilling its responsibilities under the PAEA, which requires, among 
other things, that each competitive product cover its attributable 
costs.
---------------------------------------------------------------------------

    \19\ The list also includes ``mailgrams,'' a service which was 
terminated on August 17, 2006. See Postal Bulletin 22192, October 
26, 2006, at 5; see also letter from Daniel J. Foucheaux, Jr. to 
Steven W. Williams, Secretary, Postal Rate Commission, filed 
November 2, 2006.
---------------------------------------------------------------------------

    Commission maintenance of the mail classification schedule does not 
deprive the Governors of any flexibility to change rates or classes or 
offer new products. It does, however, assure non-discriminatory service 
and transparency in a manner contemplated by the statute.\20\ The mail 
classification schedule identifies the products subject to the 
Commission's oversight, a task which does not fall to the 
Governors.\21\
---------------------------------------------------------------------------

    \20\ The Commission concurs with the Postal Service's position 
that the mail classification schedule should provide a level of 
detail similar to the DMCS. The Commission also agrees with the 
Postal Service that maintaining separate classification schedules 
for market dominant products and competitive products is reasonable. 
Nonetheless, for administrative convenience and clarity, the 
Commission intends to initially combine the separate lists for 
market dominant and competitive products in a single mail 
classification schedule.
    \21\ The mail classification schedule also serves as the source 
of the list of competitive products maintained by the Commission 
pursuant to section 3642.
---------------------------------------------------------------------------

B. Competitive Mail Matter

    Not unreasonably, parties addressing the issue define mail matter, 
in the first instance, by reference to the existing materials, namely, 
the DMCS and International Mail Manual (IMM). This works reasonably 
well for ``priority mail'' and ``expedited mail,'' both of which appear 
in the DMCS. Thus, for example, the Postal Service suggests that 
``priority mail'' consists of mail within the ``Priority Mail'' 
subclass (DMCS section 223) and ``expedited mail'' consists of Express 
Mail entered under the ``Expedited Mail Classification Schedule'' (DMCS 
section 110 et seq.). Postal Service Comments, June 18, 2007, at 11-
12.\22\
---------------------------------------------------------------------------

    \22\ See also OCA Comments, June 18, 2007, at 22; PSA Comments, 
April 6, 2007, at 8, n.8; PSA Comments, June 18, 2007, at 2; and UPS 
Comments, June 18, 2007, at 2.
---------------------------------------------------------------------------

    For purposes of promulgating the initial regulations applicable to 
competitive products, the Commission agrees that, at a minimum, mail 
matter qualifying as priority mail and expedited mail is that described 
in the DMCS. There are three features to this initial classification: 
each represents only domestic mail; each is a separate product; and the 
rates for each product are rates of general applicability.
    OCA notes that the listing of priority mail and expedited mail in 
section 3631(a) does not distinguish between domestic and international 
mail or between single-piece and bulk. OCA Comments, June 18, 2007, at 
23. Thus, it asserts that priority mail and expedited mail should 
include both domestic and international in the competitive mail 
classification schedule.\23\ This position is not unreasonable and the 
Commission proposes to include outbound international priority mail 
(Priority Mail International) and expedited mail (Global Express 
Guaranteed and Express Mail International) as separate products within 
the priority mail and expedited mail classifications respectively. As 
discussed below, inbound shipments would be classified as market 
dominant.
---------------------------------------------------------------------------

    \23\ Id. Elsewhere, however, OCA appears to suggest that other 
than two ``bulk international mail'' services all remaining 
international mail should be categorized as market dominant. Id. at 
26.
---------------------------------------------------------------------------

    Reference to the DMCS and IMM works less well for ``bulk parcel 
post'' and ``bulk international mail'' since neither is clearly 
delineated.\24\ The parties addressing the issue agree generally that 
``bulk parcel post'' consists of the following mail matter: Parcel 
Select (DMCS sections 521.23-26); Parcel Select Return Service (DMCS 
sections 521.27-28); Inter-BMC qualifying for OBMC and BMC discounts 
(DMCS sections 521.41-42); and Inter-BMC and Intra-BMC qualifying for a 
barcode discount (DMCS section 521.5). See Postal Service Comments, 
June 18, 2007, at 12-13; PSA Comments, June 18, 2007, at 3;

[[Page 50759]]

OCA Comments, June 18, 2007, at 24; and UPS Comments, June 18, 2007, at 
2-3.
---------------------------------------------------------------------------

    \24\ As PSA points out, the listing of ``Bulk Parcel Post'' 
among the rate categories of the Parcel Post subclass (DMCS section 
521.3) is an anachronism since there is no current rate associated 
with that rate category which preceded the Parcel Select rate 
categories. PSA Comments, June 18, 2007, at 2.
---------------------------------------------------------------------------

    The Commission agrees with the consensus view that ``bulk parcel 
post'' consists of the following mail matter: Parcel Select, Parcel 
Return Service, and Parcel Post mail qualifying for OBMC, BMC, and 
barcode discounts. Initially, therefore, bulk parcel post would be 
comprised of these three products.
    UPS and the Postal Service also suggest that bulk parcel post 
include additional mail matter. UPS would include mail entered as 
Inter-BMC or Intra-BMC Parcel Post by commercial mailers in quantities 
greater than one. UPS Comments, June 18, 2007, at 3; see also UPS Reply 
Comments, July 3, 2007, at 1. PSA opposes UPS's proposal as contrary to 
the commonly accepted use of the terms ``bulk'' and ``single-piece'' in 
the DMCS. PSA Reply Comments, July 3, 2007, at 2-3.
    To qualify for various current Parcel Post discounts, mailers must 
deposit at least 50 properly prepared pieces. See, e.g., DMCS sections 
521.23-26 and 521.41-42. This minimum quantity is a prerequisite for 
mailing at discounted (or non-single-piece) rates. UPS offers no 
justification for reducing that minimum volume threshold to two. 
Accordingly, the Commission will not adopt that suggestion.\25\
---------------------------------------------------------------------------

    \25\ Should experience prove otherwise, mail matter defined as 
single-piece parcel post may, if appropriate, be transferred to the 
competitive products classification pursuant to section 3642.
---------------------------------------------------------------------------

    The Postal Service suggests that ``bulk parcel post'' include 
Inter- and Intra-BMC Parcel Post pieces if postage is paid using a 
Merchandise Return Service permit. Postal Service Comments, June 18, 
2007, at 12-13. Merchandise Return Service is a special service 
enabling the permit holder to authorize a mailer to mail parcels, 
including Parcel Post mail, with the postage and fees paid by the 
permit holder. Merchandise Return Service is also available for sending 
First-Class Mail parcels. No party commented on this proposal 
specifically.\26\
---------------------------------------------------------------------------

    \26\ In its reply comments, UPS notes that it agrees generally 
with the Postal Service's definition of bulk parcel post. UPS Reply 
Comments, July 3, 2007, at 1.
---------------------------------------------------------------------------

    Although the proposal has some appeal, the Commission will not 
adopt it at this juncture. Under the PAEA, special services are 
classified as market dominant as are First-Class Mail parcels. The 
availability of Merchandise Return Service as both a market dominant 
and competitive service raises practical difficulties that are 
unexplored in this docket. Moreover, there may well be other special 
services that would be better categorized as competitive. Thus, to 
consider one in isolation may lead to results with unintended 
consequences. The better practice is to utilize the procedures for 
transferring items between the market dominant and competitive product 
lists once these lists have been established as specified by Congress 
in the PAEA.
    The parties' attempts to define the term ``bulk international 
mail'' are handicapped by the lack of a long-standing mail 
classification schedule. Instead, they turn to the IMM for guidance. It 
is a useful tool, but does not eliminate uncertainty surrounding the 
meaning of the term ``bulk international mail.'' Based on the parties'' 
comments, there appears to be little dispute that, at a minimum, bulk 
international mail consists of the following: \27\ International 
Priority Airmail Service (IPA), which is available to bulk mailers of 
all international letter items (IMM section 292); International Surface 
Airlift Service (ISAL), which is a bulk mailing system for the delivery 
of letter items (IMM section 293); and International Customized Mailing 
Agreements (ICMs), which are mailer-specific agreements subject to 
minimum revenue or quantity requirements (IMM section 297).\28\ There 
is, however, some controversy over the characterization of the 
remaining international mail services.
---------------------------------------------------------------------------

    \27\ See Postal Service Reply Comments, May 7, 2007, at 32-33; 
Postal Service Comments, June 18, 2007, at 13-14; UPS Comments, June 
18, 2007, at 4; OCA Comments, June 18, 2007, at 26; and PSA 
Comments, April 6, 2007, at 8, n.8; see also Pitney Bowes Comments, 
June 18, 2007, at 12-13.
    \28\ OCA contends that ICMs involving single-piece international 
mail should be characterized as a market dominant product. OCA 
Comments, June 18, 2007, at 56-57.
---------------------------------------------------------------------------

    The Postal Service suggests that bulk international mail should be 
interpreted to include ``multi-item mailings tendered by a single 
mailer.'' \29\ The Postal Service indicates that multiple quantities 
may be satisfied by volume commitments or other types of annual 
guarantees. Id. at 13. Thus, in addition to the foregoing international 
services, the Postal Service proposes that the following be 
characterized as bulk international mail: Global Bulk Economy, which it 
indicates provides for surface transportation of bulk First-Class Mail 
international items; Global Direct, which it indicates provides for 
direct entry of bulk mailings sent through the Postal Service bearing 
the indicia, postal markings, and return address of the destination 
country; and direct sacks of printed matter sent to a single foreign 
addressee, also known as M-bags. Id. at 14.\30\
---------------------------------------------------------------------------

    \29\ Postal Service Comments, June 18, 2007, at 13. In an 
earlier round of comments, the Postal Service endorsed the views of 
PSA and the International Mailers' Advisory Group (IMAG) that 
certain single-piece international mail should be categorized as 
competitive products, but on different grounds, namely, that the 
products, e.g., Global Express Guaranteed, Priority Mail 
International, and Express Mail International, are ``subject to 
fierce competition[.]'' Postal Service Reply Comments, May 7, 2007, 
at 32. In its more recent comments, the Postal Service's position on 
what constitutes bulk international mail appears to be limited to 
multi-item mailings tendered by a single mailer. See Postal Service 
Reply Comments, July 3, 2007, at 38-39. As an exception to this, the 
Postal Service indicates that because costs and revenues associated 
with Global Package Discount service are not separately collected, 
Express International Mail would need to be categorized as a 
competitive product. Postal Service Comments, June 18, 2007, at 15, 
n.17.
    \30\ In its discussion of ICMs, the Postal Service refers to 
Global Shipping Solutions and Global Package Discounts. Postal 
Service Comments, June 18, 2007, at 15, see also id. at n.17. 
Whether these are separate services or marketing programs in the 
form of ICMs is unclear. In its comments, the Postal Service should 
clarify their status.
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    No party filed comments opposing the Postal Service's view of bulk 
international mail.\31\ UPS agrees with it. UPS Reply Comments, July 3, 
2007, at 1. For purposes of promulgating these initial regulations, the 
Commission proposes to define bulk international mail by reference to 
bulk commercial services, which may be satisfied by volume commitments 
or other types of annual guarantees. This would include IPA, ISAL, 
ICMs, and M-bags.\32\ The Commission proposes to define IPA, ISAL, and 
M-bags as separate products and, at least initially, each ICM as a 
product.
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    \31\ As noted above, in earlier comments OCA contends that an 
ICM involving single-piece international mail, such as Priority Mail 
International, should be categorized as a market dominant product. 
OCA Comments, June 18, 2007, at 56-57.
    \32\ The Postal Service identifies Global Bulk Economy and 
Global Direct as candidates for inclusion in the bulk international 
mail category. Postal Service Comments, June 18, 2007, at 15. It 
indicates that these services are available through an ICM. Whether 
these services are available only as an ICM or if they represent a 
separate category of international mail similar to IPA and ISAL is 
unclear. In its comments, the Postal Service should clarify their 
status.
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    Regarding international mail determined by the Commission to be a 
competitive product, the PAEA amends title 39 by adding section 
407(e)(2) as follows: \33\
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    \33\ The Express Delivery & Logistics Association filed a white 
paper concerning section 407(e) taking issue with the Postal Service 
position on inbound mail. White Paper by Express Delivery & 
Logistics Association Regarding Implementation of Section 405 of the 
Postal Accountability and Enhancement Act of 2006, July 20, 2007, at 
2. See also FedEx Comments, April 6, 2007, at 4-5.
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    With respect to shipments of international mail that are 
competitive products within the meaning of section 3631 that are 
exported or imported by

[[Page 50760]]

the Postal Service, the Customs Service and other appropriate Federal 
agencies shall apply the customs laws of the United States and all 
other laws relating to the importation or exportation of such shipments 
in the same manner to both shipments by the Postal Service and similar 
---------------------------------------------------------------------------
shipments by private companies.

    Section 407(e)(1) defines the term ``private company'' as one 
``substantially owned or controlled by persons who are citizens of the 
United States.'' Thus, the Commission's findings regarding 
international mail classified as competitive products are relevant to 
the application of customs and related laws to the importation and 
exportation of such shipments, requiring that such laws be applied ``in 
the same manner to both shipments by the Postal Service and similar 
shipments by private companies.'' Regarding outbound international mail 
classified as competitive products, e.g., IPA, ISAL, and ICMs, section 
407(e)(2) would apply to shipments by the Postal Service and similar 
shipments by private companies.\34\
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    \34\ The Commission's interpretation of section 407(e) concerns 
only its role as the arbiter of international mail to be classified 
as a competitive product. It is not intended to suggest how other 
federal agencies may apply the customs laws and other laws relating 
to the importation and exportation of mail.
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    Regarding inbound international mail, there are two issues. First, 
the demarcation between bulk and single-piece international mail is 
less clear. The Universal Postal Union (UPU) identifies three types of 
mail: Letter Post, Express, and Parcel Post. The issues of inbound 
international mail have not been addressed sufficiently to enable the 
Commission to determine what inbound international mail qualifies as 
``bulk international mail.'' Given the UPU's designations, one 
possibility would be to classify Letter Post as market dominant with 
the other types of mail classified as competitive products. The 
Commission, however, has no data indicating that either Express or 
Parcel Post is properly considered to be ``bulk international mail.''
    Second, it is not apparent that classifying any inbound 
international mail as a competitive product has the same significance 
it does for outbound mail. To be sure, section 407(e) applies to the 
importation of shipments deemed competitive. More specifically, 
however, it applies to such shipments by the Postal Service and private 
companies owned by U.S. citizens. The Postal Service does not operate 
ETOEs (extra-territorial offices of exchange). Thus, there are no 
foreign-originating mail shipments by the Postal Service. Currently, 
shipments of inbound mail are handled by foreign posts and by private 
carriers. Foreign posts are not defined as private companies for 
purposes of section 407(e). In addition, although the Postal Service 
receives inbound mail from foreign posts at various customs locations, 
whether such mail is, within the meaning of section 407(e), ``imported 
by the Postal Service'' is unclear. Finally, even if shipments received 
by the Postal Service from foreign posts are construed as shipments by 
the Postal Service, there may be good reason to view such inbound mail 
as market dominant. The record is not sufficiently developed to enable 
the Commission to determine what inbound international mail is 
appropriately classified as ``bulk international'' and, therefore, a 
competitive product. The parties commenting on the foregoing discussion 
should thoroughly address the law and facts supporting their position 
and, in particular, the application of section 407(e) to inbound mail.
    Lastly, regarding competitive products, section 3632(b)(3) permits 
rate (or class) changes not of general applicability for competitive 
products. In recognition of this, the Commission is initially of the 
view that negotiated service agreements for mail classified as 
competitive are within the competitive products category and that each 
such agreement should be classified as a separate product.

C. General Applicability of Rates and Classes

    Section 3632(b) identifies two types of rates or classes--those of 
general applicability and those not of general applicability. Each is 
qualified by the phrase ``in the Nation as a whole or in any 
substantial region of the Nation[.]'' Sections 3632(b)(2) and (b)(3). 
Section 3632(b)(4) provides that the Commission shall establish by 
regulation the criteria for determining whether a rate or class is or 
is not of general applicability in the nation or any substantial part 
of the nation.
    Three parties address the ``general applicability'' of rates or 
classes largely by reference to their availability. The Postal Service 
suggests that a rate (or class) is of general applicability if it is 
``publicly available throughout the nation[.]'' Postal Service 
Comments, June 18, 2007, at 19. UPS advocates a generally similar 
standard, contending that a rate or class is of general applicability 
``if it is available to all mailers equally,'' even if not all mailers 
satisfy the conditions for the rate or class. UPS Comments, June 18, 
2007, at 7. At the other end of the spectrum, the parties suggest that 
rates or classes negotiated between the Postal Service and individual 
mailers are not of general applicability. See Postal Service Comments, 
June 18, 2007, at 19; UPS Comments, June 18, 2007, at 7; and PSA 
Comments, June 18, 2007, at 4.
    Defining whether a rate or class is ``of general applicability'' by 
reference to its availability is a reasonable means for establishing 
the outer bounds of the term. The Commission will adopt that standard. 
Thus, a rate (or class) of general applicability is one that is 
available nationwide to all mailers equally, i.e., on the same terms. 
That some mailers may not be able to qualify for the rate, e.g., for 
failure to satisfy the preparation requirements, or because it is not 
available in all geographic areas, does not alter the nature of the 
rate as one of general applicability.\35\
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    \35\ Express Mail is not available to or from certain difficult-
to-access locations. Nonetheless, it is available in the nation as a 
whole.
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    On the other hand, a contract rate (negotiated service agreement) 
negotiated between the Postal Service and an individual mailer would 
not be of general applicability.\36\ Between these parameters, however, 
determining whether a rate or class is or is not of general 
applicability throughout the nation or in any substantial region of the 
nation is less exact and, in all likelihood, would turn on the facts. 
In those situations, availability will continue to serve as a 
reasonable touchstone for determining the general applicability of the 
rate or class.
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    \36\ A ``negotiated service agreement'' is a contract negotiated 
between the Postal Service and another entity, most likely the 
mailer, for service and rates different from those of general 
applicability.
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    Only the Postal Service addresses the meaning of the term 
``substantial region,'' suggesting that it be defined by the size of 
the population of the relevant region. Postal Service Comments, June 
18, 2007, at 19-20. That standard is one of several that might be 
appropriate.\37\ Rather than address the issue in the abstract, the 
Commission concludes that whether a rate or class is or is not of 
general applicability in any substantial

[[Page 50761]]

region of the country is, at least at the outset, best determined on a 
case-by-case basis based on the facts presented. Currently, with the 
possible exception of Alaska bypass, the Postal Service does not 
provide any non-nationwide service.\38\ Among other things, section 
3642 concerns the establishment of new products. Thus, to the extent 
the Postal Service chooses to offer a product on a less-than-nationwide 
basis, there will be an opportunity to consider the phrase 
``substantial region of the nation'' in the context of a specific 
proposal.
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    \37\ The Census Bureau, for example, divides the country into 
four regions, which are further subdivided into divisions. The 
geographic area of the nine states that comprise the West Region's 
Mountain Division is more than three times greater than that 
occupied by the South Region's South Atlantic Division, which is 
comprised of eight states and the District of Columbia stretching 
from Delaware to Florida (856.1 thousand square miles versus 266.1 
thousand square miles). However, the population in the South 
Atlantic Division is more than 2.5 times greater than that of the 
Mountain Division (57.1 million versus 20.8 million based on July 
2006 estimates).
    \38\ Although Express Mail service is not available at every 
post office, unquestionably the service would be fairly 
characterized as being of general applicability throughout the 
nation.
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D. Information Supporting Rate and Class Decisions

    The Governors' authority to establish rates and classes for 
competitive products is subject to subchapter II of chapter 36 of title 
39 and the regulations promulgated by the Commission under section 3633 
to: (a) Prohibit cross-subsidies of competitive products by market 
dominant products, (b) require each competitive product to cover its 
attributable costs, and (c) ensure that collectively competitive 
products cover an appropriate share of the institutional costs of the 
Postal Service. In Order No. 15, the Commission solicited the parties' 
views on what information is needed to support changes in rates or 
classes whether of general applicability or not. PRC Order No. 15, May 
17, 2007, at 6-7. In addition, the Commission asked whether the 
information needed to support a rate decrease differed from that for a 
rate increase. Id. at 6.
    The parties offer starkly contrasting views on the information 
needed to support changes in rates. Advo, PSA, and the Postal Service 
contend that nothing need be filed with the Commission, other than the 
notice required under section 3632(b)(3), at the time rate changes are 
announced.\39\ These parties assert that competitive products' 
compliance with section 3633 should be considered only in the annual 
compliance review under section 3653. Id. UPS, on the other hand, 
contends that rate changes should be accompanied by the following 
information: Volumes, revenues, billing determinants, attributable 
costs, including an explanation of substantial cost changes; prior 
fiscal year audited data; projected data for the period when the rates 
are in effect; and unaudited data for the current fiscal year.\40\ UPS 
concludes that pre-implementation review is a prerequisite for 
determining competitive products' compliance with section 3633. Id.
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    \39\ Advo Comments, June 18, 2007, at 10-11; PSA Comments, June 
18, 2007, at 4; and Postal Service Comments, June 18, 2007, at 18-
19.
    \40\ UPS Comments, June 18, 2007, at 4-5. In its reply comments, 
UPS appears to modify its position, indicating, among other things, 
that it is not suggesting the Postal Service be required to file 
test year projections and that fiscal year data included in the 
annual report may be sufficient for rate changes noticed relatively 
shortly after the filing of the annual report. UPS Reply Comments, 
July 3, 2007, at 3-4.
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    The Postal Service asserts that the ``structure of the statute, 
including, the nature of the data required to show compliance with 
3633, suggests that there is no prior review by the Commission.'' 
Postal Service Comments, June 18, 2007, at 18. In support, it points to 
the different notice requirements associated with rate changes of 
general applicability (Federal Register notice no less than 30 days 
prior to the effective date) and rate changes of less than general 
applicability (filing with the Commission not less than 15 days prior 
to the effective date). Id. at 18-19. It argues that the former 
suggests that any substantive review is limited to the annual 
compliance review, whereas the latter seemingly is intended to protect 
the confidentiality of customized agreements. Id. at 19. This argument 
is not persuasive.
    The statutory provisions governing competitive products, 39 U.S.C. 
3631-34, neither explicitly provide for nor prohibit pre-implementation 
review of rate changes by the Commission. Section 3633 directs the 
Commission to promulgate regulations to: (a) Prohibit cross-subsidies 
of competitive products by market dominant products; (b) ensure that 
each competitive product covers its attributable costs; and (c) that 
collectively competitive products make an appropriate contribution to 
the Postal Service's overhead. To fulfill these responsibilities, the 
Commission cannot turn a blind eye to changes which may not be in 
compliance with those requirements. The different notice/filing 
requirements prescribed by section 3632 suggest the need for closer 
scrutiny of certain types of rate changes.
    Section 3632(b)(2) requires that, for rate (or class) changes of 
general applicability, the Governors publish each rate (or class) 
decision and the record of the Governors' proceeding in the Federal 
Register at least 30 days before the effective date of any new rates or 
classes.\41\ Rates (or classes) of general applicability are available 
to all mailers equally, i.e., those satisfying the eligibility 
standards for the rate (or class). So, for example, Parcel Select rates 
would be available to all mailers meeting the eligibility requirements 
for such service. In essence, rates of general applicability are the 
published (or tariff) rates for the particular service. When a 
carrier's published rates (those of general applicability) are changed, 
experience suggests that they are likely to be increased.\42\ As a 
general rule, anytime competitive prices are increased concern over 
unfair competition is diminished. Likewise, increases in postal rates 
of general applicability above those found in compliance with section 
3633 can, for purposes of these implementing regulations, be deemed to 
be presumptively reasonable. In that situation, the annual review would 
appear to be adequate to assure compliance with section 3633. The 
complaint process would be available as well.
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    \41\ Pursuant to the proposed regulations, the Postal Service 
will also be required to file the notice of all proposed rate (and 
class) changes of general applicability with the Commission no later 
than the date such notice is published in the Federal Register.
    \42\ See, e.g., FedEx Corporation's press releases of December 
4, 2006, announcing a 4.9 percent increase in certain ``standard 
list rates;'' and of November 3, 2006, announcing a 3.5 percent 
increase in the net average shipping rate for FedEx Express, both of 
which may be accessed at: http://www.fedex.com/us/about/news/pressreleases/?link=4.
---------------------------------------------------------------------------

    An identical presumption of reasonableness cannot fairly be 
presumed for rate decreases of general applicability, which, at a 
minimum, intensify concerns about potentially unfair competition. This 
is not to suggest any limitation on the Governors' authority to change 
rates. Unlike its private enterprise counterparts, however, the Postal 
Service has no residual claimants, i.e., stockholders, to shoulder the 
consequences of an improvident decision to change rates. The 
Commission's role is to ensure that rates and classes comply with 
section 3633. By doing so, the Commission preserves fair competition. 
The change in circumstances giving rise to the decrease, resulting in a 
reduction from the pre-existing presumptively lawful rates, justifies 
the pre-implementation review to ensure continued compliance with 
section 3633. Thus, the Commission proposes that for decreases in rates 
of general applicability the Postal Service will be required to 
demonstrate the change is in compliance with section 3633. See section 
3015.3(c) of the proposed regulations. The Commission does not 
anticipate that the regulations will either unduly burden the Postal 
Service

[[Page 50762]]

or delay the effectiveness of changes satisfying the minimal standards 
of lawfulness.
    Section 3632(b)(3) authorizes the Governors to establish rates (or 
classes) not of general applicability, i.e., to execute negotiated 
service agreements with mailers providing for rates different from the 
published rates (of general applicability). Notably, negotiated service 
agreements are subject to different filing requirements than are rate 
changes of general applicability. Specifically, each such negotiated 
service agreement (rate or class decision not of general applicability) 
and the record of proceedings in connection with such decision must be 
filed with the Commission not less than 15 days prior to the effective 
date of any new rate or class. There is good reason for the different 
filing requirements depending upon the type of rate change 
involved.\43\
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    \43\ The Postal Service's suggestion that customized agreements 
are required to be filed with the Commission, as opposed to simply 
being noticed in the Federal Register, to protect the 
confidentiality of such agreements (Postal Service Comments, June 
18, 2007, at 19), is only one aspect of this issue. The Postal 
Service is aware that certain information should be public. See 72 
FR 37454 (July 10, 2007), concerning recent revisions to the IMM 
regarding the notifications of ICMs.
---------------------------------------------------------------------------

    Changes not of general applicability will invariably involve 
discounts compared to published rates and perhaps involve combinations 
of services. Thus, such arrangements will inevitably raise concerns 
about the potential for unfair competition. The Commission would be 
remiss if it did not review these filings prior to their implementation 
to ensure compliance with section 3633. The Governors' rate (or class) 
changes must be in writing and include a statement of explanation and 
justification. 39 U.S.C. 3632(b)(1). The information to demonstrate 
compliance with section 3633 will presumably have been reviewed by the 
Postal Service and be readily available. Thus, the Commission proposes 
to require the Postal Service to file with all competitive negotiated 
service agreements, i.e., rate (or class) changes not of general 
applicability, sufficient cost and revenue information to enable the 
Commission to assess, as a preliminary screen, whether the agreement 
satisfies the requirements of section 3633. In particular, the 
Commission proposes that the Postal Service be required to show that 
each negotiated service agreement covers its attributable costs and to 
represent that the agreement is otherwise in compliance with section 
3633.
    The Commission does not anticipate that this review process will 
delay the effective date of any negotiated service agreement found to 
be in compliance with section 3633. Nor will the review process impinge 
on the Governors' authority to change rates or execute negotiated 
service agreements. The limited review is intended to provide some 
assurance that, at least preliminarily, the arrangement is not 
unlawful. As these arrangements will undoubtedly contain commercially 
sensitive information, it is understood that the Postal Service may 
exercise its prerogative to seek appropriate protective conditions.

E. Section 3633 Standards

    Section 3633 contains three provisions by which the lawfulness of 
competitive products' rates are judged. These provisions, prohibiting 
cross-subsidies, establishing an attributable cost floor, and requiring 
an appropriate institutional cost contribution, are designed to act in 
concert to ensure that competitive rates are lawful. Each provision, 
along with the parties' suggestions for its implementation, is 
discussed in turn.
1. Prohibition Against Cross-Subsidies
    Section 3633(a)(1) prohibits the subsidization of competitive 
products by market dominant products. In response to Order No. 15, the 
parties suggest a wide range of standards to be used to test for cross-
subsidies.
    <bullet> OCA suggests that the standard requires competitive 
products to cover both their attributable costs plus an appropriate 
share of institutional costs. OCA Comments, June 18, 2007, at 33.
    <bullet> APWU contends that there is no cross-subsidy if 
competitive products cover their attributable costs. APWU Comments, 
June 18, 2007, at 5.
    <bullet> PSA advocates use of the incremental cost test, whereby 
``revenues for each competitive product cover its incremental cost.'' 
PSA Comments, April 6, 2007, at 5. It suggests that the Commission's 
attributable costs serve as a proxy for incremental costs. Id.\44\
---------------------------------------------------------------------------

    \44\ PostCom supports PSA's position. PostCom Reply Comments, 
July 3, 2007, at 5.
---------------------------------------------------------------------------

    <bullet> Advo endorses the incremental cost test applied to 
competitive products collectively, i.e., revenues from competitive 
products ``cover their combined incremental costs.'' Advo Comments, 
June 18, 2007, at 11.\45\
---------------------------------------------------------------------------

    \45\ Advo notes the possibility that implementation of section 
2011(h) may cause an increase in competitive products' costs, 
``resulting in a rate floor that is well in excess of the `cross 
subsidy' threshold.'' Id.
---------------------------------------------------------------------------

    <bullet> UPS contends that subsection (a)(1) redefines the term 
``subsidy'' to require that competitive products collectively cover 
their attributable costs, their appropriate share of institutional 
costs, plus an additional amount representing ``a fair share of the 
unattributable network costs from which competitive products benefit.'' 
UPS Comments, June 18, 2007, at 9.\46\
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    \46\ UPS asserts that the Federal Trade Commission's report, 
pursuant to section 703(d) of the PAEA, will aid the Commission in 
determining the ``net economic benefit realized by the Postal 
Service due to preferential legal treatment[.]'' Id.
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    <bullet> The Postal Service advocates a standard requiring 
competitive products' total revenues to be at least equal to the sum of 
each product's attributable costs ``plus the group-specific costs 
caused by the competitive products as a group.'' Postal Service 
Comments, June 18, 2007, at 24.\47\
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    \47\ The Postal Service indicates that an analysis will be 
required to identify group-specific costs. Id. at 21.
---------------------------------------------------------------------------

    To test for cross-subsidies, the Commission will initially apply 
the incremental cost test, a standard that Advo and PSA suggest.\48\ 
Incremental costs are the variable and fixed costs that would be 
eliminated if a product (or products) was (were) (hypothetically) 
discontinued.\49\ In prior rate cases, the Commission has discussed the 
issue and adopted a definition offered by Postal Service witness 
Panzar: ``The revenues collected from any service (or group of 
services) must be at least as large as the additional (or incremental) 
cost of adding that service (or group of services) to the enterprise's 
other offerings.'' PRC Op. R97-1, ] 4022, quoting USPS-T-11 at 8. While 
acknowledging that this is the test it should endeavor to apply (id., ] 
4026), the Commission's attempts to do so have been thwarted by 
concerns about the underlying assumptions used, e.g., constant 
variability and the stability of the operating plan. See, e.g., PRC Op. 
R2000-1, ] 4055 (``the results of the test may still be unreliable 
where deleting a subclass or combination of subclasses causes a large 
reduction in an important cost driver.'')
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    \48\ PSA's endorsement of the incremental cost test appears to 
be designed to satisfy both the proscription against cross-subsidies 
and the requirement that each product cover its attributable costs. 
See PSA Comments, April 6, 2007, at 5.
    \49\ See Docket No. R87-1, USPS-T-3 at 11.
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    The Commission recognizes that presently it lacks the data that 
would enable it to employ rigorously the incremental costs to test for 
cross-subsidies of competitive products. Shortly, the Department of the 
Treasury will provide its analysis of Postal Service costs, and the 
Commission will initiate a public proceeding to evaluate

[[Page 50763]]

this information.\50\ Previously, to test for cross-subsidies the 
Commission has used each product's attributable cost as a reasonable 
proxy for the costs associated with that product.\51\ Endorsing this 
standard as an appropriate surrogate, the Commission remarked that 
``nonnegative markups are good evidence against the presence of the 
most elementary cross subsidies.'' PRC Op. R97-1, ] 4024.\52\
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    \50\ UPS and NAA urge the Commission to commence a separate 
proceeding to address cost issues. UPS Comments, June 18, 2007, at 
15; NAA Comments, June 18, 2007, at 11-12.
    \51\ PSA suggests this as well. PSA Comments, April 6, 2007, at 
5.
    \52\ APWU does not elaborate on its suggestion there is no 
cross-subsidy provided that competitive products cover their 
attributable costs. APWU Comments, June 18, 2007, at 5-6. Without 
more, however, that standard appears merely to restate subsection 
(a)(2)'s requirement of an attributable cost floor. OCA's suggested 
test, on the other hand, does take into account non-negative 
markups, but also includes ``an appropriate share of institutional 
costs[.]'' OCA Comments, June 18, 2007, at 33. The test for cross-
subsidies is independent from the issue of what the appropriate 
share should be for competitive products as a whole. Revenues in 
excess of incremental costs (or attributable costs in the interim) 
demonstrate no cross-subsidy exists, but are not necessarily an 
indication that the contribution to institutional costs (the share) 
is appropriate.
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    The Postal Service's suggested test, competitive products' revenues 
at least equal to the sum of the products' attributable costs plus the 
products' causally related group-specific costs, appears to be similar 
to the incremental cost test. To test for cross-subsidies, the 
incremental cost test should consider all possible combinations of 
products (services). It is not clear whether this is different from 
what the inclusion of ``group-specific costs'' contemplates. See Postal 
Service Reply Comments, July 3, 2007, at 40. In any event, the Postal 
Service does agree that ``analysis will be required'' to quantify the 
additional, causally related, non-variable group-specific costs. Postal 
Service Comments, June 18, 2007, at 21.
    To test for cross-subsidies, the inclusion of such group-specific 
costs is appropriate. Thus, until reliable incremental cost data are 
available, the Commission will continue to use its current cross-
subsidy test, supplemented to include causally related, group-specific 
costs. If and when incremental costs can be accurately determined, the 
Commission may adjust its existing practice.
    UPS asserts that the PAEA redefines cross-subsidy to require that 
competitive products collectively bear costs in excess of their 
attributable costs ``and a fair share of the unattributable network 
costs from which competitive products benefit.'' UPS Comments, June 18, 
2007, at 9. The Postal Service, Advo, and PSA take issue with UPS's 
contention that the PAEA redefines the term ``subsidy.'' \53\ The 
Commission will not adopt UPS's construction. The relevant PAEA 
provisions, sections 3633(a)(1) and 2011(h)(1)(A)(i)(II), prohibit the 
cross-subsidy of competitive products by market dominant products. 
Apart from any consideration of the public policies that might be 
furthered by the UPS test, an issue not developed on this record,\54\ 
the Commission does not interpret the foregoing provisions as 
redefining the concept of cross-subsidy.
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    \53\ Postal Service Reply Comments, July 3, 2007, at 24-27; Advo 
Reply Comments, July 3, 2007, at 5-7; and PSA Reply Comments, July 
3, 2007, at 3-5.
    \54\ See Advo Reply Comments, July 3, 2007, at 7.
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2. Attributable Cost Floor
    Section 3633(a)(2) requires that each competitive product cover its 
attributable costs, which, in section 3631(b), are defined as ``the 
direct and indirect postal costs attributable to such product through 
reliably identified causal relationships.'' This standard codifies the 
Commission's long-standing method of attribution under the Postal 
Reorganization Act. See, e.g., PRC Op. R97-1, ] 4017 (``The Commission 
is not prepared to depart from the position that attributable cost 
means costs which can be said to be reliably caused by a subclass of 
mail or service.'') \55\ For purposes of initially implementing 
regulations pursuant to section 3633, the Commission intends to employ 
this long-established attribution method to determine compliance with 
section 3633(a)(2).
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    \55\ Elaborating on the point, the Commission noted that in 
addition to specific fixed costs it also found other nonvariable 
costs to be attributable, e.g., the fixed portion of special 
delivery messengers. Id. at ] 4016. See also PSA Comments, April 6, 
2007, at 9.
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    UPS advocates that long-run incremental costs be used as the 
benchmark for each competitive product's attributable costs. UPS 
Comments, June 18, 2007, at 12. It views this approach as preferable to 
the existing method because it includes ``shared fixed costs,'' i.e., 
fixed costs incurred over the long run by more than one product. Id. In 
reply comments, UPS appears to endorse this standard to test for cross-
subsidies as well, at least with respect to calculating group-specific 
costs. UPS Reply Comments, July 3, 2007, at 5. The Commission does not 
adopt UPS's suggestion.
    Section 3633(a)(2) specifies attributable costs as a term that has 
an accepted meaning in the context of Postal Service costing. Employing 
long-run incremental costs as a measure of attributable costs renders 
all costs variable in theory.\56\ Furthermore, although the notion of 
shared fixed costs may be relevant to the issue of cross-subsidies, as 
discussed in the previous subsection, UPS has not demonstrated any 
reasonable nexus between those costs, which by definition are fixed 
regardless of the number of products, and a product's attributable 
costs, including those reliably identified based on causal 
relationships.
---------------------------------------------------------------------------

    \56\ See Postal Service Reply Comments, July 3, 2007, at 29-30, 
remarking on the period deemed sufficient to allow the Postal 
Service to adjust fully to the impact the provision of the product 
creates.
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    In its response to Order No. 15, the Postal Service does not appear 
to comment specifically on the standard to be used to measure 
compliance with section 3633(a)(2). Rather, it includes that subsection 
in its interpretation of what section 3633 requires as a whole, namely, 
that competitive products' revenues ``be sufficient to cover the sum of 
attributable costs and group specific costs, plus any mark-up on 
attributable costs that the Commission determines is `appropriate.' '' 
Postal Service Comments, June 18, 2007, at 23. In its reply comments, 
the Postal Service recognizes that the statutory definition, section 
3631(b), codifies the long-standing attribution method. Postal Service 
Reply Comments, July 3, 2007, at 29. The Postal Service goes on, 
however, to note its apparent agreement with UPS ``that, for purposes 
of 3633(a)(2), the cost floor for each competitive product should be 
the costs the Postal Service would avoid if it did not offer that 
competitive product.'' Id. This statement appears to suggest agreement 
with UPS's position regarding the use of long-run incremental costs for 
purposes other than testing for cross-subsidies, although the Postal 
Service does raise the issue of how one would define the period 
sufficient to allow the Postal Service to adjust fully to the impact 
the provision of the service creates. See id. at 30. This appears to be 
an area where future analysis may be warranted.
3. Appropriate Share of Institutional Costs
    Section 3633(a)(3) requires that competitive products collectively 
cover an ``appropriate share'' of the Postal Service's institutional 
costs. The term ``appropriate share'' is not defined; its meaning is 
left for the Commission to determine based on consideration of all 
relevant factors. The parties addressing this issue suggest a variety 
of

[[Page 50764]]

approaches, the most concrete of which is that the Commission begin 
with the markups from Docket No. R2006-1.\57\ Several parties urge that 
the contribution be set at a low level, arguing, among other things, 
that it represents a floor not a ceiling, that the Postal Service has 
incentive to exceed that floor, and that if set too high the Postal 
Service will be unable to compete and, as a result, contribution will 
be lost to the detriment of market dominant mailers.\58\ One party 
contends that contributions from market dominant and competitive 
products must be compared, suggesting various ways in which this might 
be accomplished, e.g., on a per-piece (unit contribution) or percentage 
(markup) basis.\59\ The Postal Service advocates that the contribution 
be set at a relatively low level,\60\ suggesting that it be 
``calculated as a mark-up on the sum of the competitive products' 
attributable cost.'' Id. at 23. UPS agrees with this method of 
calculating the contribution. UPS Reply Comments, July 3, 2007, at 6.
---------------------------------------------------------------------------

    \57\ See OCA Comments, June 18, 2007, at 34-35; PSA Comments, 
April 6, 2007, at 11-13; Pitney Bowes Comments, April, 6, 2007, at 
38: and UPS Reply Comments, July 3, 2007, at 6. Initially, UPS 
suggested that the contribution from competitive products should be 
maximized. UPS Comments, April 6, 2007, at 5-7.
    \58\ Advo Reply Comments, May 7, 2007, at 15-19; MOAA Comments, 
June 18, 2007, at 2; and APMU Comments, April 6, 2007, at 3-5.
    \59\ Valpak Comments, June 18, 2007, at 13-14. Valpak states 
that such comparisons ``would enable the Commission to ensure that 
competitive products are not subsidizing market-dominant 
products[.]'' Id. at 14.
    \60\ Postal Service Comments, June 18, 2007, at 24-26.
---------------------------------------------------------------------------

    The Commission considered various options, including all of those 
suggested in the comments, in evaluating how best to quantify, at least 
initially, appropriate share. Among the options considered and rejected 
were: Equal unit contribution, equal percentage markup, markup of 
competitive products' attributable costs, and percentage of revenues. 
None of these was deemed preferable to the alternative of basing 
competitive products' contribution on a percentage of total 
institutional costs. To be sure, the various other methods could all be 
expressed mathematically in terms of percentage of total institutional 
costs, but each implies a pricing technique, e.g., a particular 
coverage level, absent from simply basing appropriate share on a 
percentage of total institutional costs. The latter better reflects the 
section 3633(a)(3) directive and is more easily understood than the 
various alternatives. Moreover, this approach is a fitting starting 
point, recognizing that by year's end the Department of the Treasury 
will submit recommendations to the Commission relating to treatment of 
Postal Service costs. Interested persons will have an opportunity to 
comment on those recommendations. See section 2011(h)(2)(A).
    In attempting to quantify appropriate share, the Commission begins 
its analysis with the competitive products' contribution resulting from 
rates recommended in Docket No. R2006-1. Based on the recommended 
rates, the Commission estimates that in TY 2008 competitive products 
will contribute approximately $2.4 billion to the Postal Service's 
institutional costs.\61\ Expressed as a percentage, this figure 
represents approximately 6.9 percent of the total contribution to 
institutional costs.
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    \61\ Necessarily, the results are estimated since data are not 
reported for bulk parcel post and bulk international mail separately 
from their single-piece counterparts. For purposes of this exercise, 
bulk parcel post consists of Parcel Select, Parcel Return Service, 
and Parcel Post eligible for a BMC, OBMC, or barcode discount. The 
foregoing estimate includes a TY 2008 contribution for bulk 
international mail of approximately $176 million (out of $376 
million), calculated using the average percentage contribution for 
competitive international mail in FY 2005 and FY 2006 as a proxy.
---------------------------------------------------------------------------

    For purposes of implementing these regulations initially, the 
Commission is persuaded that the competitive products' contribution 
should be modified from Docket No. R2006-1 levels. The Commission 
proposes to set the initial contribution at 5.5 percent of the Postal 
Service's institutional costs. Illustratively, based on Docket No. 
R2006-1 TY 2008 figures, this percentage yields a contribution of 
approximately $1.9 billion.
    Several factors influence the Commission's proposal to establish an 
appropriate share below the contribution level derived from rates 
recommended in Docket No. R2006-1. The PAEA so thoroughly overhauls the 
ratemaking process that the Commission would be remiss if it failed to 
consider the differences in the rate setting process. Under the pre-
PAEA Postal Reorganization Act (PRA), postal rates were constrained by 
a break-even requirement and systemwide pricing scheme under which 
institutional costs were assigned based on non-cost factors.\62\ Given 
these constraints, pricing was a ``zero-sum game,'' i.e., an increase 
(or decrease) in the assignment to one subclass (or service) must be 
offset by a decrease (or increase) to one or more other subclasses (or 
services).
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    \62\ Among the non-cost factors the Commission used to assign 
institutional costs are: Value of service, impact on mailers and 
competitors, availability of alternatives, and simplicity of rate 
structure. See 39 U.S.C. 3622(b) (2002). For purposes of this 
discussion, reference to the PRA is shorthand for the Act prior to 
its amendment by the PAEA.
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    In lieu of that system, the PAEA bifurcates Postal Service products 
into market dominant and competitive categories with a principal 
objective being to reduce costs and increase efficiency. Under the 
PAEA, the Postal Service has an incentive to reduce both attributable 
and institutional costs due to limitations on market dominant rates and 
because it is authorized to retain earnings.
    Under the PRA, the assignment of institutional costs was designed 
to ensure that each subclass or type of mail made a reasonable 
contribution to the Postal Service's overhead, yielding rates that were 
fair and equitable and subsidy-free. The PAEA addresses the issues of 
rate levels and subsidies differently. Market dominant rates are 
limited by a price cap, not by policy considerations. Thus, market 
dominant mailers are insulated from the consequences of any failure by 
the Postal Service to compete successfully. Rates for competitive 
products are subject to market conditions and, by statute, must satisfy 
criteria which preclude the possibility of subsidization by market 
dominant products.
    The ``appropriate share'' required by the PAEA is not synonymous 
with ``reasonably assignable'' required by PRA section 3622(b)(3). No 
longer are rates for competitive products predicated on explicit 
consideration of specific non-cost factors. Moreover, the resulting 
rate levels represent significantly different things. Under the PRA, 
rate levels equate with maximum rates for the subclass or type of mail, 
as rates are not designed to generate a surplus. In contrast, under the 
PAEA, the concept of rate levels for competitive products largely 
disappears, with the Postal Service given the flexibility to price 
competitive products however it wishes, provided its rates satisfy the 
statutory standards of lawfulness. Appropriate share is a floor for all 
competitive products, but the hope (and expectation) is that 
competitive products will generate contributions in excess of the 
floor. Thus, it is unlike reasonably assignable in two other respects: 
it applies to competitive products collectively, not to subclasses or 
services individually; and it represents a minimum (not maximum) 
contribution level, serving as a threshold for compliance with section 
3633(a)(3). Because it may retain earnings, the Postal Service has 
incentives to exceed this threshold, including reducing rate pressure 
on market dominant rates, continuation of

[[Page 50765]]

universal service, and the possibility of bonuses.
    Section 3633 requires that each competitive product cover its 
attributable costs and prohibits competitive products from being 
subsidized by market dominant products. Thus, they must be self-
sustaining since any shortfall cannot be recovered by increasing market 
dominant rates.
    In attempting to quantify an appropriate contribution, the 
Commission is mindful of the risks of setting it too high, particularly 
at the outset of the new system of regulation. The market is 
competitive; the Postal Service's market share is relatively small; and 
the Postal Service needs some flexibility to compete. On the other 
hand, the Commission has an obligation to preserve competition by not 
establishing a markup so low as to give the Postal Service an 
artificial competitive advantage. The task, as Advo noted, ``calls for 
a delicate balance.'' Advo Reply Comments, May 7, 2007, at 16.
    The Commission's proposal to set the minimum contribution level at 
5.5 percent of total institutional costs is influenced by historic 
results. A review of the Cost and Revenue Analysis (CRA) for domestic 
and international postal operations supports a best estimate of 
competitive products' contribution to institutional costs at 5.4 
percent in FY 2005 and 5.7 percent in FY 2006. These figures were 
developed based on the reported FY 2005 and FY 2006 data for Priority 
Mail, Express Mail, and international mail.\63\ The CRA reports Parcel 
Post data in the aggregate. Thus, to develop an estimate for bulk 
Parcel Post, consisting of Parcel Select, Parcel Return Service, and 
Parcel Post mail eligible for a BMC, OBMC, or barcode discount, the 
Commission calculated an estimated bulk parcel post unit contribution 
for FY 2005 based on actual FY 2005 data. Comparable data are not 
available for FY 2006. Thus, the estimated FY 2006 bulk parcel post 
contribution is based on the same proportional relationship between 
bulk parcel post and parcel post as a whole used for FY 2005.\64\ 
Setting the initial competitive products' contribution at historic 
levels is a reasonable means to quantify appropriate share, 
particularly at the outset of the new form of competitive rate 
regulation. Since it is no longer subject to the pricing constraints of 
the PRA, the Postal Service should perform at least as well as it has 
historically.
---------------------------------------------------------------------------

    \63\ The figures for international mail were developed based on 
the contribution associated with that mail included within the 
competitive category in this order. The international CRA for FY2006 
does not separately identify data for Global Bulk Economy (GBE) 
mail. However, since GBE had no reported volume in FY 2005, its 
contribution in FY 2006, if any, would likely have no measurable 
affect on the total international mail contribution.
    \64\ The contribution from bulk parcel post is, in any event, 
relatively minor. For the convenience of the parties, workpapers 
showing the development of these estimates will be made available on 
the Commission's Web site (http://www.prc.gov) in Docket No. RM2007-
1. The Commission is providing this level of detail so that parties 
have an opportunity to review the underlying data and, if 
appropriate, suggest revisions which may more accurately portray 
historic results.
---------------------------------------------------------------------------

    This order represents the initial effort to implement the 
competitive products' regulations. The Commission emphasizes that its 
initial quantification of appropriate share is not written in stone. 
The statute specifically authorizes the Commission to revise this share 
as needed and, in any event, requires that the regulations be reviewed 
every five years to determine whether they be retained, modified, or 
eliminated. The Commission anticipates that that need may arise for any 
number of reasons, e.g., additions or deletions to the competitive 
product lists and market conditions.\65\
---------------------------------------------------------------------------

    \65\ Pursuant to section 2011(h)(1)(A)(ii), the Secretary of the 
Treasury will recommend substantive and procedural rules that should 
be followed in determining the assumed Federal income tax on 
competitive products income. Those recommendations are due on or 
before December 19, 2007. Interested persons will have an 
opportunity to comment on those recommendations. For purposes of 
this order, it is sufficient to note that the assumed Federal income 
tax on competitive products income is an issue that may affect 
future efforts to develop an appropriate share.
---------------------------------------------------------------------------

4. Application of the term ``product''
    The PAEA defines the term ``product'' to mean ``a postal service 
with a distinct cost or market characteristic for which a rate or rates 
are, or may reasonably be, applied.'' 39 U.S.C. 102(6). The parties 
offer widely differing suggestions as to how this definition should be 
applied. The Postal Service recognizes that the term could be 
interpreted to mean individual rate categories are products. Postal 
Service Supplemental Comments, June 19, 2007, at 6. It dismisses that 
construction, however, contending that product should be ``interpreted 
at a high level of aggregation'' and proposing that it be interpreted 
``as generally equivalent to the current `subclasses' under the PRA.'' 
Id. Several parties echo the Postal Service's view that product should 
be equated with subclass.\66\ OCA, on the other hand, takes the 
position that, for competitive products, the term ``product'' be 
interpreted ``at the rate-cell level.'' OCA Comments, April 6, 2007, at 
36. NAA asserts that product is not synonymous with subclass or rate 
category, but instead should be construed ``more consistent with 
everyday understandings[.]'' \67\ Other parties assert that various 
specific arrangements, e.g., special classifications, customized 
agreements, and negotiated service agreements, either are or are not 
products.\68\
---------------------------------------------------------------------------

    \66\ See, e.g., PSA Comments, June 18, 2007, at 11; MOAA Reply 
Comments, July 3, 2007, at 4; Advo Reply Comments, July 3, 2007, at 
12; and Pitney Bowes Comments, June 18, 2007, at 11.
    \67\ NAA Comments, June 18, 2007, at 14. NAA observes, 
correctly, that product is defined in a manner that ``resembles the 
Commission's traditional test for a rate category.'' Id. at 14-15.
    \68\ See, e.g., NPPC Comments, June 18, 2007, at 10 (negotiated 
service agreements are products); PostCom Reply Comments, July 3, 
2007, at 7-8 (each market dominant negotiated service agreement 
should be viewed as a distinct product); GCA Comments, June 18, 
2007, at 9-10 (special classifications and class not of general 
applicability containing one service would be a product, but a 
negotiated service agreement may or may not be); and NAA Comments, 
June 18, 2007, at 16 (status of negotiated service agreements should 
be decided on a case-by-case basis). See also UPS Comments, June 18, 
2007, at 19 (rates for a given type of mail may vary only if there 
is ``a distinct and significant cost or market characteristic for 
[that] type of mail * * *'').
---------------------------------------------------------------------------

    Suggestions that the term ``product'' be applied in a blanket 
fashion are neither practical nor justified. Instead, as discussed 
below, a more nuanced approach, based on balancing the objectives of 
the PAEA and practical considerations, is required.
    Plainly, product cannot reasonably be read as equivalent to 
subclass since product is defined as having either ``a distinct cost or 
market characteristic'' \69\ whereas, under the Commission's long-
established practice, subclass requires both cost and demand 
differences. The Commission has clearly expressed the relevant 
standard: ``To identify groupings of mail, which should be accorded 
subclass rather than rate category treatment, the Commission 
traditionally has sought to identify differences in both cost and 
market, or demand.'' \70\
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    \69\ 39 U.S.C. 102(6) (emphasis added).
    \70\ See PRC Op. MC95-1, ] 3022 (emphasis added); see also id. ] 
3023 (``The Commission has consistently expected proponents of 
separate subclass treatment to show differences in both costs and 
demand.'').
---------------------------------------------------------------------------

    The PAEA overhauls postal ratemaking, bifurcating the mailstream 
into market dominant and competitive mail categories, and prescribing 
different rate setting mechanisms for each. Market dominant rates are 
subject to an annual price cap. Section 3622(d)(1)(A). This foremost 
ratemaking requirement is, by statute, applicable to classes of mail as 
defined in the DMCS in effect on the date of enactment of the PAEA. 
Section 3622(d)(2)(A). In

[[Page 50766]]

contrast, competitive rates are not tied to a cap; instead, they cannot 
be set below certain cost thresholds, including, among other things, 
the requirement that each competitive product covers its attributable 
costs. Section 3633(a)(2). When drafting the PAEA, Congress was well 
aware of the Commission's long-established definitions, as it showed 
when defining ``costs attributable'' in section 3631(b). It can be 
assumed to have intentionally chosen the term ``product'' in preference 
to ``subclass,'' a term that is not defined by the PAEA and, under the 
new rate setting procedures, is largely an irrelevant artifact.
    Nor is the Commission persuaded by the Postal Service's attempts to 
buttress its suggestion that product be defined as a subclass by 
reference to other provisions of the PAEA. For example, it compares 
section 3622(c)(2) with former section 3622(b)(3) and notes that 
attribution ``is expressly linked `to each competitive product.' '' 
Postal Service Supplemental Comments, June 19, 2007, at 7. Based on 
this, it concludes ``there is nothing to suggest that attribution be 
done differently under the PAEA than it was done under the PRA: at the 
subclass level.'' Id. The focus on attribution does not support the 
Postal Service's argument. The PAEA reaffirms the Commission's 
attribution method and specifically applies it to each competitive 
product, which is given a different meaning than subclass. Moreover, 
concerning market dominant products, the price cap regulation 
supersedes attribution.\71\ As discussed below, the rejection of the 
contention that product should, in all instances, be equated with 
subclass does not foreclose a finding that a specific subclass is a 
product.
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    \71\ The Postal Service also contends that language in section 
3652(b), which concerns annual reports to the Commission, supports 
its interpretation of product as being equivalent to subclass. 
Specifically, it contends that the phrase ``with respect to each 
market-dominant product for which a workshare discount was in 
effect'' suggests that a market dominant product is not equivalent 
to workshare discount, ``such that an individual workshare discount 
(which is a rate category) is not itself an individual `product.' '' 
Id. at 8. This supposition is not persuasive. First, as the Postal 
Service concedes, the term ``product'' could be interpreted as a 
rate category; thus a workshare discount could be a product. Second, 
the Commission reads the phrase ``each market-dominant product for 
which a workshare discount was in effect'' as reflecting the 
possibility that mail matter for which a workshare discount is in 
effect, e.g., First-Class automation letters, could be found to be a 
separate product.
---------------------------------------------------------------------------

    OCA's proposal is the polar opposite of the Postal Service's. 
Instead of ``a high level of aggregation,'' \72\ OCA would apply the 
term ``product'' at the most disaggregated level. Specifically, OCA 
proposes that, for competitive products, product be applied at the rate 
cell level, a result it contends is suggested by the phrase `` 
`distinct cost * * * characteristic.' '' OCA Comments, April 6, 2007, 
at 36. Thus, under its reading, every competitive rate cell must cover 
its attributable costs. The Commission does not construe section 102(6) 
so narrowly.
---------------------------------------------------------------------------

    \72\ Id. at 6.
---------------------------------------------------------------------------

    Rate cells generally reflect cost differences, but that is not the 
same as having separate distinct cost characteristics. There are myriad 
cost driving factors, e.g., degree of preparation, density, weight, 
shape, distance, and type of delivery, that may be characterized as 
cost characteristics. Rate cells identify variations within 
characteristics such as zoned rates, or levels of presortation. OCA's 
system would be impractical to implement and impossible to administer. 
Aside from these practical difficulties, OCA's proposal is flawed in 
another respect. It contends that rate cell satisfies the requirement 
that ``a rate or rates'' be applied because a rate cell may have more 
than one rate, e.g., the same weight/zone Express Mail Post Office-to-
Post Office has different rates than Post Office-to-Addressee. This 
hardly proves that a rate cell may have more than one rate; rather, the 
example involves separate rate categories with separate rate cells.
    To qualify as a product, a postal service must exhibit either a 
distinct cost or market characteristic for which a rate or rates are, 
or may reasonably be, applied. But the existence of a separate rate, 
implying a cost difference, does not require that the particular postal 
service, e.g., rate cell, be deemed a product. A rule of reason must be 
applied.
    The revamped ratemaking under the PAEA is designed to achieve 
various goals, principal among them are to afford the Postal Service 
enhanced pricing flexibility, while at the same time providing 
accountability through greater transparency. These joint goals will 
best be achieved if they are balanced with one another. Transparency 
cannot be achieved if the term ``product'' is applied too broadly, 
e.g., solely at the subclass level. Aggregating postal services into 
only a few products, a result urged by several parties, forfeits 
transparency and serves no legitimate business or regulatory need. 
Stated differently, it will not provide for accountability, a bedrock 
principle underlying the PAEA. By the same token, pricing flexibility 
is illusory if the term ``product'' is applied too narrowly, e.g., at 
the rate cell level. Disaggregating postal services into too many 
products would impose unwarranted administrative burdens on the Postal 
Service, thwart pricing flexibility, and serve no legitimate business 
or regulatory need. It would not, in short, lead to any enhancement in 
postal service, which, too, is a central principle underlying the PAEA.
    In applying the term ``product'' to the competitive and market 
dominant categories of mail, the Commission has been guided by these 
principles and has tried to strike an appropriate balance between these 
competing goals. In doing so, the Commission has also considered other 
factors, including the type of mail involved, the pre-existing 
classifications, and the potential for other reasonable groupings of 
postal services.
    The term ``product'' has greater significance for competitive 
products than for market dominant products. Section 3633(a)(2) requires 
each competitive product to cover its attributable costs. Each 
competitive product is identified following the process outlined in 
section 3631, which first, in section 3631(a), lists four types of mail 
(``priority mail, expedited mail, bulk parcel post, and bulk 
international mail'') as being within the competitive category of 
mail;\73\ and second, in section 3631(c), instructs that the ``mail 
matter'' comprising each of these types of mail has ``the meaning given 
to such mail matter under the mail classification schedule.'' The 
Commission is charged with the responsibility of determining what mail 
matter comprises each of these types of mail, and that mail matter is 
what initially becomes the competitive products.\74\
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    \73\ Mailgrams have been discontinued and, thus, are not 
discussed.
    \74\ A few parties suggest that competitive products are defined 
as the types of mail listed in section 3631(a). See, e.g., NAA 
Comments, June 18, 2007, at 14-15; PSA Reply Comments, May 8, 2007, 
at 6; see also Postal Service Supplemental Comments, June 19, 2007, 
at 8-9. These contentions lack merit. Competitive products are not 
``define[d]'' in section 3631(a). PSA Comments, May 8, 2007, at 6. 
That section merely lists the types of mail designated as 
competitive. It does not define, i.e., identify, what each 
competitive product is. That process requires the Commission to 
identify the mail matter that comprises each type of mail listed in 
section 3631(a) and, as appropriate, to identify the product (or 
products) within each.
---------------------------------------------------------------------------

    In the discussion above, the Commission identified 11 products that 
initially comprise the competitive products' category. These are as 
follows:
    <bullet> Priority mail, consisting of Domestic Priority Mail and 
International Priority Mail;
    <bullet> Expedited mail, consisting of Domestic Express Mail and 
International
    <bullet> Express Mail;

[[Page 50767]]

    <bullet> Bulk parcel post, consisting of Parcel Select, Parcel 
Return Service, and parcel post qualifying for BMC, OBMC, and barcode 
discounts;
    <bullet> Bulk international mail, consisting of IPA, ISAL, and M-
bags; and
    <bullet> Negotiated service agreements, which includes ICMs.\75\
---------------------------------------------------------------------------

    \75\ Each negotiated service agreement is a separate product.
---------------------------------------------------------------------------

    These products not only form the basis for the mail classification 
schedule, but also comprise the initial competitive product list 
required by section 3642.
    In developing the initial list of competitive products, the 
Commission balanced the Postal Service's business needs for pricing 
flexibility with the public's need for accountability. The results 
demonstrate that the term ``product'' can be applied in a judicious 
manner, based on a consideration of the law and facts. This process 
results in products based on classes of mail (Express Mail), subclasses 
of mail (Priority), rate categories (Parcel Select), and negotiated 
service agreements. While these products could, in theory, be further 
disaggregated or, in the case of negotiated service agreements, further 
aggregated, the Commission concludes that doing so at this time is 
unwarranted. This effort represents the initial listing of competitive 
products. In fashioning this list, the Commission has endeavored to 
balance goals of the PAEA, while also taking into account the parties' 
competing concerns. The PAEA contemplates that the implementing 
regulations and the product lists may be changed. See sections 3622(a), 
3633(a), and 3642(a). Once experience is gained, the list of products 
may be changed as warranted.
    The application of the term ``product'' to the types of mail listed 
in section 3621(a) is of lesser significance because, as noted above, 
the price cap is applied at the class level, not at a product (or any 
other) level. Nonetheless, the same rule of construction applies. 
Compare sections 3621(b) and 3631(c). The process begins with section 
3621(a) which lists the following 10 types of mail as being within the 
market dominant category of mail:
    1. First-Class Mail letters and sealed parcels;
    2. First-Class Mail cards;
    3. Periodicals;
    4. Standard Mail;
    5. Single-piece parcel post;
    6. Media Mail;
    7. Bound Printed Matter;
    8. Library Mail;
    9. Special services; and
    10. Single-piece international mail.
    As with competitive products, section 3621(b) instructs that the 
``mail matter'' comprising each of the foregoing types of mail ``have 
the meaning given to such mail matter under the mail classification 
schedule.'' Moreover, the foregoing list (and thus the mail matter 
represented therein) are ``subject to any changes the Postal Regulatory 
Commission may make under section 3642.'' Section 3621(a). The 
Commission is charged with the responsibility of determining what mail 
matter comprises each type of mail, and that mail matter is what 
initially becomes the market dominant products. These products, in 
turn, form the basis for the mail classification schedule and also 
serve as the source of the market dominant product list required by 
section 3642.
    The types of market dominant mail listed in section 3621(a) 
represent a medley of current postal services. Five are classes of 
mail, i.e., Periodicals; Standard Mail; Bound Printed Matter; and Media 
and Library Mail; two are subclasses, i.e., First-Class letters and 
sealed parcels, and First-Class cards; and one, single-piece parcel 
post, is a rate category. The remaining two include special services, 
i.e., ancillary services, and single-piece international mail. An 
additional consideration is that three of these types of mail, First-
Class letters and sealed parcels, First-Class cards, and Standard Mail, 
are covered by the postal monopoly.\76\
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    \76\ As a result, these types of mail are distinguishable from 
other market dominant products. See section 3642(b)(2). At first 
blush, this distinction may suggest a lesser need to disaggregate 
these types of mail matter into more than one product. Other 
considerations, e.g., transparency and the business and/or 
regulatory needs, may outweigh that initial inclination.
---------------------------------------------------------------------------

    In considering how best to identify the mail matter comprising each 
type of mail, the Commission turns initially to the existing reference 
materials, an approach suggested by numerous parties. With respect to 
domestic mail, identifying the relevant mail matter may be accomplished 
by reference to the DMCS, a relatively straightforward proposition, 
except for single-piece parcel post. However, since the Commission has 
identified the competitive products associated with bulk parcel post, 
the latter simply represents the remaining parcel post mail matter. 
With respect to single-piece international mail, the relevant mail 
matter may be gleaned from the IMM. In an earlier filing, the Postal 
Service suggested specific types of mail matter that might be 
considered single-piece international mail. Postal Service Reply 
Comments, May 7, 2007, at 33. Since the Commission has identified the 
competitive products associated with bulk international mail, the 
single-piece counterpart would logically consist of the remaining 
international mail matter.
    In addition to the foregoing, the Commission proposes to add 
negotiated service agreements, i.e., special classifications pursuant 
to section 3622(c)(10), as separate market dominant product. Initially, 
each agreement (special classification) will be treated as a separate 
product.\77\ This treatment affords the Postal Service flexibility to 
enter into any special classification it wishes, but provides the 
necessary transparency to satisfy relevant business and regulatory 
needs. Absent the discipline that such accountability imposes, both the 
Postal Service and the Commission roles under the PAEA may be 
compromised. For example, the Postal Service may lack agreement-
specific details on profitability of the agreement, while the 
Commission would be unable to assess whether the agreement complied 
with the statute.
---------------------------------------------------------------------------

    \77\ In some instances, it may be appropriate to group as a 
single product negotiated service agreements that are functionally 
equivalent and thus take on the characteristics of a niche 
classification.
---------------------------------------------------------------------------

    In lieu of identifying at this time the market dominant products 
associated with the foregoing mail, the Commission concludes, for 
reasons of accuracy and expedition, that a preferable alternative 
exists. In commenting on the mail classification process, the Postal 
Service volunteered to compile a mail classification schedule. Postal 
Service Supplemental Comments, June 19, 2007, at 11, n.34. The 
Commission appreciates that offer. Doing so will be a useful exercise 
as it will enable the Postal Service to draft a mail classification 
schedule, consistent with this order, that best suits its needs. 
Previously, the Postal Service indicated the mail classification 
schedule would contain a level of detail similar to the DMCS. Id. at 
10-11. The Commission finds that prospect acceptable.
    In its submission, the Postal Service should identify the market 
dominant products it believes should be in the mail classification 
schedule. This will enable the Postal Service to categorize its 
services into products so that it can make appropriate business 
decisions. The draft mail classification schedule should incorporate 
the competitive products discussed above.
    The draft mail classification schedule is due September 14, 2007. 
Responses to this schedule may be filed by no later than September 28, 
2007. Lastly, section 3642 provides the Commission with authority to 
add or remove products

[[Page 50768]]

from the market dominant and competitive product lists, and to transfer 
products between the lists. This proceeding represents the initial 
attempt to establish these lists. The Commission anticipates that 
changes to these lists will be necessary. Once the initial lists are 
established, the Postal Service may wish to modify them to better serve 
its and its customers' needs.

IV. Part 3020--Product Lists

    Rule 3020.1 explains the purpose of all rules that follow in part 
3020. The rules establish a Mail Classification Schedule, which 
categorizes products as either market dominant or competitive. The 
categorizations must initially be consistent with the types of mail 
specified by 39 U.S.C. 3621(a) and 39 U.S.C. 3631(a). Once the Mail 
Classification Schedule is established, the rules specify the 
procedures to modify the market dominant and competitive product lists 
and to update the explanatory information contained therein. Authority 
for this rule flows directly from the general requirements specified in 
39 U.S.C. 3642, which allows the Commission to consider modifications 
to the market dominant and competitive product lists.
    Experimental products offered as market tests are specifically 
excluded from the requirements of part 3020 by 39 U.S.C. 3641(a)(2). 
The Commission intends to develop separate rules allowing recognition 
of experimental products in the Mail Classification Schedule during the 
market tests to facilitate transparency.

A. Subpart A--Mail Classification Schedule

    The Commission is charged with maintaining accurate product lists. 
39 U.S.C. 3642. The Commission views the Mail Classification Schedule 
as the vehicle for presenting the product lists with necessary 
descriptive content. The explanatory information included with the 
product lists will inform participants in Commission proceedings of the 
nature and scope of Postal Service products and must be sufficiently 
detailed to allow the Commission to verify that the rates and 
categorization of products are in compliance with the PAEA. Thus, the 
Mail Classification Schedule is important in that it will provide for 
the transparent and accurate maintenance of the product lists.
    The Postal Service suggests two mail classification schedules: one 
for market dominant products and one for competitive products. Postal 
Service Supplemental Comments, June 19, 2007, at 11. The Postal Service 
believes this is appropriate because different regulatory regimes apply 
to each side of the business. Postal Service Comments, June 18, 2007, 
at 16. Additionally, the Postal Service views the product lists as an 
entity separate from the mail classification schedules.
    The Commission, as a matter of preference and administrative ease, 
proposes a single Mail Classification Schedule subdivided into two 
parts. A single schedule will be less likely to cause confusion, 
simpler to administer when modifying product lists, and will facilitate 
the process of providing adequate public notice when modifications to 
the product lists occur.
    Rule 3020.10 describes the Mail Classification Schedule as a single 
document containing two parts. The first part contains the list of 
market dominant products with related explanatory information, and the 
second part contains the list of competitive products with related 
explanatory information.
    The Postal Service has expressed the view that it should maintain 
the physical Mail Classification Schedule. Postal Service Supplemental 
Comments, June 19, 2007, at 14. The Commission finds the Mail 
Classification Schedule to be the appropriate vehicle for maintaining 
the market dominant and competitive product lists that the Commission 
is charged with overseeing. This does not impose constraints on the 
Postal Service's flexibility to develop new products or modify products 
consistent with the policies of title 39. The Commission's primary role 
under 39 U.S.C. 3642, as evident from the proposed rules, is the proper 
categorization of Postal Service products. The rules proposed for 
updating product descriptions and features in the Mail Classification 
Schedule will not inhibit Postal Service flexibility.
    The Postal Service has indicated that it may be appropriate for the 
Mail Classification Schedule to be at a similar level of detail as the 
previous Domestic Mail Classification Schedule (DMCS). Postal Service 
Comments, June 18, 2007, at 16. Elements of the International Mail 
Manual (IMM) also will have to be incorporated into the Mail 
Classification Schedule. Id. The Commission concludes that the Postal 
Service is in the best position to describe its own products and 
propose descriptive language to be included in the Mail Classification 
Schedule. Whether the type of mail is categorized as market dominant or 
competitive is already determined by statute as specified in 39 U.S.C. 
3621(a) and 39 U.S.C. 3631(a). The portion of this notice of proposed 
rulemaking describing the regulation of competitive products clarifies 
the proper categorization where potential questions of interpretation 
might arise. Rule 3020.11 directs the Postal Service to initially 
propose the contents of a Mail Classification Schedule consistent with 
the categorization specified by statute.
    A short 30-day period from the enactment of this rule is provided 
for the Postal Service to formulate its Mail Classification Schedule 
proposal. This should provide sufficient time because it is expected 
that the Postal Service will draw heavily from existing material 
provided in the DMCS and the IMM. The Postal Service also has 
considerable time to plan and undertake preliminary preparation for 
this activity prior to this rule becoming final.
    Several comments suggest that the product categorizations specified 
in the statute did not fully reflect the distinctions between market 
dominant and competitive products. Some time after the initial rounds 
of rulemakings are complete, the Commission expects the Postal Service 
to propose comprehensive modifications to the product lists to more 
accurately reflect market dominant and competitive products.\78\
---------------------------------------------------------------------------

    \78\ This may include incorporating some ancillary services, 
which currently are considered special services, into host products.
---------------------------------------------------------------------------

    The Commission will file notice of the Postal Service's Mail 
Classification Schedule proposal in the Federal Register, with initial 
commentary by the Commission, and solicit public comment. This process 
will allow the Commission to develop a Mail Classification Schedule 
that can become part of the Commission's rules.
    The Commission currently publishes the Domestic Mail Classification 
Schedule in the Code of Federal Regulations. However, extensive 
portions of this document are abridged to facilitate the Office of the 
Federal Register's publication requirements. Redacting portions of this 
document is labor intensive, and the portions of the document 
eventually published do not provide a complete description of Postal 
Service products to interested parties. The Postal Service incorporates 
by reference the Mailing Standards of the United States Postal Service, 
Domestic Mail Manual (DMM) and the IMM into its rules, which avoids 
many of the publication problems now experienced by the Commission. 
Incorporating a document by reference into the Code of Federal 
Regulations requires permission from the Office of the Federal 
Register. The Commission has initiated discussions with the Office of 
the

[[Page 50769]]

Federal Register to obtain the permission necessary to incorporate by 
reference the Mail Classification Schedule. Thus, rule 3020.12 adopts 
the Postal Service's approach and pending Office of the Federal 
Register approval incorporates the Mail Classification Schedule by 
reference into the Commission's rules of practice.
    Rule 3020.13 specifies the content of the Mail Classification 
Schedule. Unlike the current DMCS which is organized by classes and 
subclasses, the Mail Classification Schedule will be organized by 
Postal Service products with market dominant and competitive products 
each appearing in separate sections of the document. This is intended 
to satisfy the requirement to maintain separate market dominant and 
competitive product lists.
    Unique to the market dominant section of the Mail Classification 
Schedule is the requirement to specify the class of each product. See 
rule 3020.13(a)(1). A single product might be a class in and of itself, 
or a group of products such as single-piece Parcel Post, Media Mail, 
Bound Printed Matter, and Library Mail might make up a class. 
Identification of class is necessary to implement the system of 
regulating rates and classes required under 39 U.S.C. 3622(d)(2)(A).
    Rules 3020.13(a)(2) and (b)(1) require presentation of product 
descriptions, and rules 3020.13(a)(3) and (b)(2) require presentation 
of the current rates and fees. The Commission invites comment on 
whether the rate and fee schedules should be integrated with each 
product description, or whether rate and fee schedules should be 
collected and appear at the end of the market dominant section or the 
competitive section as applicable, similar to how they now appear in 
the DMCS.
    For competitive products, the rules only require disclosure of 
rates and fees for products of general applicability. For products not 
of general applicability, the rates and fees of negotiated agreements 
still may be disclosed, but disclosure is not required because of the 
probability that these rates and fees may be subject to confidentiality 
requirements.
    Several products may be subject to unique regulatory treatment 
under the PAEA, such as products of special classification, products 
not of general applicability, experimental products undergoing market 
tests, and non-postal products. Rules 3020.13(a)(4)-(6) and (b)(3)-(5) 
simply require that these products be identified as such.
    The Commission is required to provide notice in the Federal 
Register whenever modifications are approved for the market dominant 
and competitive product lists. Rule 3020.14(e) implements these notice 
requirements specified by 39 U.S.C. 3642(d)(2).

B. Subpart B--Requests Initiated by the Postal Service To Modify the 
Product Lists Described Within the Mail Classification Schedule

    Rule 3020.30 provides the procedure for the Postal Service to 
propose modifications to the market dominant and competitive product 
lists as specified by 39 U.S.C. 3642(a). Proposals to modify the lists 
shall be initiated by filing a request with the Commission. The 
modifications that may be proposed are to add a product to a list, 
remove a product from a list, or to transfer a product between lists. 
Multiple modifications may be included in one request.
    The Commission requires specific information to properly determine 
the correct categorization of a product as either market dominant or 
competitive. It also needs information to assure the accuracy of the 
product lists in the Mail Classification Schedule. The Postal Service 
is to provide this information in its request.
    Rule 3020.31 specifies the content of the Postal Service's request. 
It requires the Postal Service to identify the product and class of the 
product, if applicable, (rule 3020.31(a)), and any special 
characteristics of the product such as: whether it is a special 
classification, whether it is a product not of general applicability, 
or whether it is a non-postal product (rule 3020.31(d)). Rule 
3020.31(c) requires the Postal Service to indicate the nature of the 
request, i.e., whether it is a request to add, remove or transfer a 
product. Rule 3020.31(f) requires the Postal Service to propose 
modifications to the Mail Classification Schedule necessary to 
implement its request. Finally, rules 3020.31(b) and (e) require the 
Postal Service to provide supporting justification for its request. The 
supporting justification includes a copy of the Governors' decision 
supporting the request if one has been issued, and the material 
specified in rule 3020.32 described below.
    Rule 3020.32 directs the Postal Service to provide supporting 
justification to demonstrate that the modification it requests is in 
accordance with the policies and applicable criteria of title 39. The 
supporting justification shall be in the form of a statement from a 
sponsor(s) of the request who attests to the accuracy of the 
information provided. Given a presumption that a hearing on the record 
will not be provided unless a need is demonstrated, the statement need 
not be in the form of testimony.
    Paragraphs (b) through (h) of rule 3020.32 focus attention on 
specific provisions of title 39. For market dominant products, 
paragraph (b) requires the Postal Service to demonstrate that its 
proposal is not inconsistent with the objectives, factors, and 
requirements of modern rate regulation for market dominant products 
specified in 39 U.S.C. 3622. For competitive products, paragraph (c) 
requires the Postal Service to demonstrate that its proposal is not 
inconsistent with the requirements for rates of competitive products 
specified in 39 U.S.C. 3633.
    The primary criteria upon which the Commission is to review the 
Postal Service's request are provided in 39 U.S.C. 3642(b). These 
criteria require consideration of the product's market power, monopoly 
status, private sector provision of similar products, the opinions of 
users of the product, and the impact on small business concerns. 
Paragraphs (d) through (h) of the proposed rule require the Postal 
Service to provide specific information necessary for the Commission to 
analyze the request in light of these criteria. Finally, paragraph (i) 
requires the Postal Service to provide other information as is 
necessary to fully inform the Commission of its proposal.
    Rule 3020.33 institutes a docket for each Postal Service request. 
Assigning a docket allows the Commission to organize and track all 
material related to a request within its docketing, i.e., filing 
online, system. Notice of each docket shall be published in the Federal 
Register. The notice will provide information regarding the opportunity 
for written comment from the public. Written comment will be the 
primary avenue for public input as to whether or not the proposed 
product modification complies with applicable statutory provisions and 
Commission rules.
    The PAEA anticipates a different form of review than what was 
provided for classification changes under previous legislation. The 
primary focus of the review will be on compliance with the statutory 
requirements for proper categorization of the Postal Service product as 
either market dominant or competitive. Review of the operational 
parameters of the product and the financial basis of the product 
typically will be minimal. The Postal Service's request will be 
reviewed as presented. Participant input into the review process will 
be through notice and comment. The Commission will review

[[Page 50770]]

each request for compliance with applicable statutory provisions and 
Commission rules with consideration of the views expressed in public 
comments.
    Rule 3020.34 outlines the review procedures. If the requested 
modification appears to be in compliance with applicable statutory 
provisions and Commission rules, the Commission may approve the 
modification without further proceedings. This is consistent with 
providing the Postal Service flexibility and with the after-the-fact 
review anticipated by the PAEA. If the request does not appear to be in 
compliance, the Commission will provide an explanation to the Postal 
Service and, if appropriate, institute a proceeding to further consider 
the request. Where minor problems are discovered, the Commission may 
provide the Postal Service with the opportunity to modify its request 
to bring the request into compliance.
    Rule 3020.35 provides options for further consideration of a 
request where there is an indication that the request is not in 
compliance. Consideration will begin with the Commission convening a 
conference to identify issues and discuss appropriate approaches for 
exploring relevant issues. In preparation for the conference, the 
Commission will request written statements of positions that identify 
the issues and solicit proposals for further review procedures. Shortly 
after the conclusion of the conference, the Commission will issue a 
procedural ruling on how to proceed with the request. The Commission 
preserves options ranging from immediately approving the request, to 
providing an opportunity for a hearing, to instituting any other action 
appropriate to the nature of issues involved.

C. Subpart C--Requests Initiated by Users of the Mail To Modify the 
Product Lists Described Within the Mail Classification Schedule

    Rule 3020.50 provides the procedure for users of the mail to 
propose modifications to the market dominant and competitive product 
lists as specified by 39 U.S.C. 3642(a). To allow the Postal Service to 
be the first to initiate proposals to modify product lists, rules in 
subpart C will not become effective until 6 months after the rules in 
subpart B become effective.
    In general, the rules in subpart C parallel the rules discussed 
above in subpart B applicable to Postal Service requests. The notable 
exceptions are discussed below.
    In many instances, a Postal Service request will be supported by a 
Governors' decision. Typically, a Governors' decision will not be 
available for modification requests initiated by users of the mail. 
Thus, a user of the mail does not have a requirement to provide a 
Governors' decision in support of its request. Rule 3220.5, cf. rule 
3020.31(b).
    A user of the mail may or may not have informed the Postal Service 
of its intent to file a request. Thus, rule 3020.54 directs the 
Secretary of the Commission to provide a copy of the request to the 
Postal Service. At the same time, the Postal Service is given an 
opportunity to provide its initial views, within 28 days, as to the 
request and to suggest appropriate Commission action. The initial views 
provided by the Postal Service play an important part in the review 
process. With a request initiated by the Postal Service, it is presumed 
that the request is feasible to implement and consistent with the 
operational plans and goals of the Postal Service. This may or may not 
be the case for requests initiated by users of the mail.
    The review of a request under rule 3020.55 is more complex than a 
review of a Postal Service request under rule 3020.34 because the 
initial views of the Postal Service must be considered. It would be 
impractical to proceed with a request that was operationally not 
feasible for the Postal Service to implement, or inconsistent with 
Postal Service policies and goals. With this in mind, if the proposed 
modification is in compliance with statutory provisions and Commission 
rules, the Commission may approve the modification without further 
proceedings, but only to the extent that the request is consistent with 
the Postal Service's views. If the request does not appear in 
compliance with applicable statutory provisions, Commission rules, or 
is not consistent with the views of the Postal Service, the Commission 
will either reject the request, or if appropriate, institute 
proceedings to further consider the request under rule 3020.56.

D. Subpart D--Proposal of the Commission To Modify the Product Lists 
Described Within the Mail Classification Schedule

    Rule 3020.70 provides the procedure for the Commission to propose 
modifications to the market dominant and competitive product lists as 
specified by 39 U.S.C. 3642(a). To allow the Postal Service to be the 
first to initiate proposals to modify product lists, rules in subpart C 
will not become effective until 6 months after the rules in subpart B 
become effective.
    In general, the rules in subpart D parallel the rules discussed 
above in subpart B applicable to Postal Service requests. The notable 
exceptions are discussed below.
    As with a request initiated by a user of the mail, a Governors' 
decision will not be available for modification proposals initiated by 
the Commission. Thus, the Commission does not have a requirement to 
provide a Governors' decision in support of its request. The Commission 
will, however, provide its explanation for initiating the docket. Rule 
3220.71, cf. rule 3020.31(b).
    To formally start the review process, rule 3020.74 directs the 
Secretary of the Commission to provide a copy of the Commission 
proposal to the Postal Service. As with a request initiated by a user 
of the mail, the Postal Service is given an opportunity to provide its 
initial views as to the proposal and to suggest appropriate Commission 
action, within 28 days. The initial views provided by the Postal 
Service play an equally important role in the review process, whether 
the request was initiated by a user of the mails or proposed by the 
Commission.
    The review of a request under rule 3020.75 is similar to a request 
initiated by a user of the mail under rule 3020.55 in that the initial 
views of the Postal Service must be considered. With this in mind, if 
the proposed modification is in compliance with statutory provisions 
and Commission rules, the Commission may approve the modification 
without further proceedings, but only to the extent that the request is 
consistent with the Postal Service's views. If the request does not 
appear in compliance with applicable statutory provisions, Commission 
rules, or is not consistent with the views of the Postal Service, the 
Commission will either withdraw the proposal, or if appropriate, 
institute proceedings to further consider the proposal under rule 
3020.76.

E. Subpart E--Requests Initiated by the Postal Service To Update the 
Mail Classification Schedule

    The accuracy and timeliness of the Mail Classification Schedule are 
important as the Commission will rely on the Mail Classification 
Schedule when undertaking its regulatory responsibilities. Users of the 
mail also may rely on the Mail Classification Schedule to form the 
basis for understanding and utilizing Postal Service products and 
services and presenting their positions before the Commission. This 
subpart provides a simplified path for the Postal Service to provide 
necessary updates to the Mail Classification Schedule.

[[Page 50771]]

    The Postal Service is in the best position to provide timely and 
accurate descriptions of its products. Rule 3020.90 requires the Postal 
Service to assure that the product descriptions (i.e., all information 
about a product appearing in the Mail Classification Schedule) 
accurately reflect the current offerings of Postal Service products and 
services.
    There are inherent limits on the scope or magnitude of any update 
allowable under subpart E. Specifically excluded are updates that would 
modify the market dominant or the competitive product lists. Implicitly 
excluded are updates that might be governed by other rules such as 
changes to rates and fees. A proposed update may not change the nature 
of a service to such an extent that it effectively creates a new 
product or eliminates an existing product. This subpart is not intended 
for such changes.
    Within these limitations, however, this subpart allows the Postal 
Service the flexibility to update provisions of the Mail Classification 
Schedule with minimal review. To prevent abuse, other checks and 
balances always are available such as the compliant process. This is 
consistent with both allowing the Postal Service flexibility and 
providing after-the-fact review where appropriate.
    The simplified path provided by rule 3020.91 to make changes to the 
descriptions of the products and services described within the Mail 
Classification Schedule only requires the Postal Service to provide 
notice to the Commission prior to the effective date of a proposed 
change. While preserving the Commission's editorial rights in the Mail 
Classification Schedule, rule 3020.92 indicates that the Commission 
intends to implement requested appropriate updates to the Mail 
Classification Schedule. There is no provision requiring review of the 
substance of such changes. The document will be updated to coincide 
with the effective date of the change determined by the Postal Service.

F. Subpart F--Size and Weight Limitations for Mail Matter

    The Postal Service may establish size and weight limitations for 
mail matter pursuant to 39 U.S.C. 3682. Subpart F requires the Postal 
Service to include size and weight limitations for mail matter in the 
Mail Classification Schedule to provide visibility to users of the mail 
and provide information necessary for the Commission to fulfill its 
statutory role. For market dominant mail matter, the Commission will 
provide notice of the proposed update in the Federal Register and allow 
public comment. If the Commission finds the proposed update in 
accordance with the policies and the applicable criteria of title 39, 
the Mail Classification Schedule will be updated to coincide with the 
effective date of the proposed change. If the Commission finds the 
proposed update not in accordance with the policies and the applicable 
criteria of title 39, the Commission will take such action as it deems 
appropriate. For competitive mail matter, the Postal Service simply 
provides notice of an update to the Mail Classification Schedule 
pursuant to subpart E. The Commission does not review proposed updates 
to weight and size limitations of competitive mail matter.

V. Ordering Paragraphs

    It is ordered:
    1. The Commission proposes to amend its rules of practice and 
procedure as shown below. The proposed amendments involve revising rule 
5, 39 CFR 3001.5, by amending rules 5(r) and (s) and adding new rules 
5(t) and (u); and adding new parts 3010, Rules Applicable to Rate 
Adjustments for Market Dominant Products; 3015, Regulation of Rates for 
Competitive Products; and 3020, Product Lists.
    2. Interested persons may submit comments by September 14, 2007.
    3. Interested persons may submit reply comments by September 28, 
2007.
    4. The United States Postal Service shall submit, by September 14, 
2007, a draft mail classification schedule containing a market dominant 
product list and a competitive product list consistent with the 
discussion in chapter III, section E.4.
    5. Interested persons may submit comments concerning the draft mail 
classification schedule by September 28, 2007.
    6. The Secretary shall arrange for publication of this order in the 
Federal Register.

     Attachment A.--Comments to Regulations Establishing a System of
                               Ratemaking
------------------------------------------------------------------------
          Participant                    Title             Filing date
------------------------------------------------------------------------
Advo, Inc. (Advo).............  Comments of Advo, Inc.  April 6, 2007.
                                 in Response to
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of       May 7, 2007.
                                 Advo, Inc. in
                                 Response to Advance
                                 Notice of Proposed
                                 Rulemaking.
                                Comments of Advo, Inc.  June 18, 2007.
                                 in Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of       July 3, 2007.
                                 Advo, Inc. in
                                 Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
Akerman Senterfitt Wickwire     Submission of Comments  April 2, 2007.
 Gavin.
Alliance of Nonprofit Mailers,  Comments of Alliance    April 6, 2007.
 National Association of         of Nonprofit Mailers,
 Presort Mailers and National    National Association
 Postal Policy Council (ANM-     of Presort Mailers
 NAPM-NPPC).                     and National Postal
                                 Policy Council on
                                 Advance Notice of
                                 Proposed Rulemaking.
                                Reply Comments of       May 7, 2007.
                                 Alliance of Nonprofit
                                 mailers, National
                                 Association of
                                 Presort Mailers and
                                 National Postal
                                 Policy Council on
                                 Advance Notice of
                                 Proposed Rulemaking.
Alliance of Nonprofit Mailers   Comments of Alliance    April 6, 2007.
 and Magazine Publishers of      of Nonprofit Mailers
 America, Inc. (ANM-MPA).        and Magazine
                                 Publishers of
                                 America, Inc. on
                                 Advance Notice of
                                 Proposed Rulemaking.

[[Page 50772]]

 
                                Reply Comments of       May 7, 2007.
                                 Alliance of Nonprofit
                                 Mailers and Magazine
                                 Publishers of
                                 America, Inc. on
                                 Advance Notice of
                                 Proposed Rulemaking.
                                Initial Comments of     June 18, 2007.
                                 Alliance of Nonprofit
                                 Mailers and Magazine
                                 Publishers of
                                 America, 2007. Inc.
                                 on Further Advance
                                 Notice of Proposed
                                 Rulemaking (Order No.
                                 15).
                                Reply Comments of       July 3, 2007.
                                 Alliance of Nonprofit
                                 Mailers and Magazine
                                 Publishers of
                                 America, Inc. on
                                 Further Advance
                                 Notice of Proposed
                                 Rulemaking (Order No.
                                 15).
Amazon.com....................  Statement of Paul       July 9, 2007.
                                 Misener, Vice
                                 President for Global
                                 Public Policy on
                                 Behalf of Amazon.com
                                 at Wilmington,
                                 Delaware Field
                                 Hearing on July 9,
                                 2007.
American Business Media (ABM).  Initial Comments of     April 6, 2007.
                                 American Business
                                 Media.
American Business Media,        Joint Comments of       April 6, 2007.
 Greeting Card Association,      American Business
 and Newspaper Association of    Media, Greeting Card
 America (ABM-GCA-NAA).          Association, and
                                 Newspaper Association
                                 of America With
                                 Respect to the
                                 Complaint Process.
American Postal Workers Union,  Initial Comments of     April 6, 2007.
 AFL-CIO (APWU).                 the American Postal
                                 Workers Union, AFL-
                                 CIO, in Response to
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of the   May 7, 2007.
                                 American Postal
                                 Workers Union, AFL-
                                 CIO.
                                Initial Comments of     June 18, 2007.
                                 the American Postal
                                 Workers Union, AFL-
                                 CIO, in Response to
                                 Second Advance Notice
                                 of Proposed
                                 Rulemaking on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of the   July 3, 2007.
                                 American Postal
                                 Workers Union, AFL-
                                 CIO, in Response to
                                 Second Advance Notice
                                 of Proposed
                                 Rulemaking on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking.
Association for Postal          Initial Comments of     April 6, 2007.
 Commerce (PostCom).             PostCom in Response
                                 to Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of the   May 7, 2007.
                                 Association for
                                 Postal Commerce.
                                Comments of PostCom in  June 18, 2007.
                                 Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Joint Comments on OCA   July 3, 2007.
                                 Positions.
                                Reply Comments of       July 3, 2007.
                                 PostCom in Response
                                 to Second Advance
                                 Notice of Proposed
                                 Rulemaking.
Association of Priority Mail    Association of          April 6, 2007.
 Users, Inc. (APMU).             Priority Mail Users,
                                 Inc. Comments on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking in
                                 Response to
                                 Commission Order No.
                                 2.
                                Association of          June 18, 2007.
                                 Priority Mail Users,
                                 Inc. Comments on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking in
                                 Response to
                                 Commission Order No.
                                 15.
                                Association of          July 3, 2007.
                                 Priority Mail Users,
                                 Inc. Reply Comments
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking in
                                 Response to
                                 Commission Order No.
                                 15.
Senators Collins and Carper...  PRC Comments from       April 11, 2007.
                                 Senators Collins and
                                 Carper.
DigiStamp, Inc................  Comments of DigiStamp.  April 2, 2007.
Direct Marketing Association,   Direct Marketing        April 6, 2007.
 Inc. (DMA).                     Association, Inc.
                                 Initial Comments
                                 Pursuant to PRC Order
                                 No. 2.
                                Direct Marketing        May 7, 2007.
                                 Association, Inc.
                                 Reply Comments
                                 Pursuant to PRC Order
                                 No. 2.
                                Direct Marketing        July 3, 2007.
                                 Association, Inc.
                                 Reply Comments
                                 Pursuant to PRC Order
                                 No. 15.
Discover Financial Services     Reply Comments of       May 7, 2007
 LLC (DFS).                      Discover Financial
                                 Services LLC.
                                Further Comments of     July 16, 2007.
                                 DFS Services LLC.

[[Page 50773]]

 
DST Systems, Inc., DST Output,  Statement of Mury       June 26, 2007.
 Inc. and DST Mailing Service,   Salls on Behalf of
 Inc..                           DST Systems, Inc.,
                                 DST Output, Inc., and
                                 DST Mailing Service,
                                 Inc., at Kansas City
                                 Field Hearing June
                                 22, 2007.
Federal Express Corporation     Comments of Federal     April 5, 2007.
 (FedEx).                        Express Corporation.
Greeting Card Association       Comments of the         April 6, 2007.
 (GCA)..                         Greeting Card
                                 Association in
                                 Response to Advance
                                 Notice of Proposed
                                 Rulemaking.
                                Reply Comments of the   May 7, 2007.
                                 Greeting Card
                                 Association.
                                Comments of the         June 18, 2007.
                                 Greeting Card
                                 Association in
                                 Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking.
                                Reply Comments of the   July 3, 2007.
                                 Greeting Card
                                 Association in
                                 Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking.
Hallmark Cards, Inc...........  Statement of Don Hall,  June 26, 2007.
                                 Jr., President and
                                 CEO, Hallmark Cards,
                                 Inc. at Kansas City,
                                 Missouri Field
                                 Hearing, June 22,
                                 2007.
International Mailers'          Comments on Behalf of   April 6, 2007.
 Advisory Group.                 the International
                                 Mailers' Advisory
                                 Group.
JP Morgan Chase & Co..........  Statement of Daniel C.  July 9, 2007.
                                 Emens on Behalf of JP
                                 Morgan Chase & Co. at
                                 Wilmington, Delaware
                                 Field Hearing on July
                                 9, 2007.
Jon Mulford Associates........  Comments of Jonathan    March 14, 2007.
                                 Mulford on Behalf of
                                 John Mulford
                                 Associates Regarding
                                 Docket No. RM2007-1.
Los Angeles Times.............  Statement of David D.   June 28, 2007.
                                 Hiller, Publisher,
                                 Los Angeles Times at
                                 Los Angeles Field
                                 Hearing on June 28,
                                 2007.
Mail Order Association of       Comments of Mail Order  April 6, 2007.
 America (MOAA).                 Association of
                                 America.
                                Reply Comments of Mail  May 7, 2007.
                                 Order Association of
                                 America.
                                Response of the Mail    June 18, 2007.
                                 Order Association of
                                 America to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of Mail  July 3, 2007.
                                 Order Association of
                                 America to Comments
                                 Filed in Response to
                                 Second Notice of
                                 Proposed Rulemaking.
Major Mailers Association       Initial Comments of     June 18, 2007.
 (MMA)..                         Major Mailers
                                 Association.
The McGraw-Hill Companies,      Reply Comments of The   May 7, 2007.
 Inc..                           McGraw-Hill
                                 Companies, Inc.
                                 Pursuant to Order No.
                                 2.
McBride, Ken..................  Statement of Ken        June 28, 2007.
                                 McBride at Los
                                 Angeles Field Hearing
                                 on June 28, 2007.
                                Reply Comments of The   July 6, 2007.
                                 McGraw-Hill
                                 Companies, Inc. in
                                 Response to
                                 Supplemental Comments
                                 of the United States
                                 Postal Service on the
                                 Classification
                                 Process.
Meredith Corporation..........  Statement of Randy      June 26, 2007.
                                 Stumbo, Director of
                                 Distribution and
                                 Postal Affairs for
                                 Meredith Corporation,
                                 at Kansas City,
                                 Missouri Field
                                 Hearing on June 22,
                                 2007.
The Nation....................  Comments of The Nation  June 19, 2007.
                                 on Docket RM2007-1.
National Association of         Comments of National    June 18, 2007.
 Homebuilders.                   Home Association of
                                 Home Builders.
National Association of Letter  National Association    May 7, 2007.
 Carriers (NALC).                of Letter Carriers'
                                 Response to Other
                                 Parties' Comments on
                                 Proposed Rulemaking
                                 Concerning Exigency
                                 Clause and Future
                                 Complaint Procedures.
National Association of         Comments of the         June 18, 2007.
 Presort Mailers (NAPM).         National Association
                                 of Presort Mailers.
National Catholic Development   Statement of Sr.        July 9, 2007.
 Conference.                     Georgette Lehmuth,
                                 OSF on Behalf of
                                 National Catholic
                                 Development
                                 Conference at
                                 Wilmington, Delaware
                                 Field Hearing on July
                                 9, 2007.
National Newspaper Association  Comments of the         April 6, 2007.
 (NNA).                          National Newspaper
                                 Association (NNA).

[[Page 50774]]

 
National Newspaper Association  Statement of Dave       June 26, 2007.
 (NNA) and Missouri Press        Berry, Vice
 Association.                    President, Community
                                 Newspaper Publishers,
                                 Inc. and Publisher of
                                 the Bolivar Herald-
                                 Free Press, Bolivar,
                                 Missouri on Behalf of
                                 the NNA and Missouri
                                 Press Association, at
                                 Kansas City Field
                                 Hearing June 22, 2007.
National Postal Policy Council  Comments of National    June 18, 2007.
 (NPPC).                         Postal Policy Council
                                 in Response to
                                 Further Advance
                                 Notice of Proposed
                                 Rulemaking.
National Postal Policy Council  Reply Comments of       July 3, 2007.
 and National Association of     National Postal
 Presort Mailers (NPPC-NAPM).    Policy Council and
                                 National Association
                                 of Presort Mailers in
                                 Response to Further
                                 Advance Notice of
                                 Proposed Rulemaking.
Newgistics, Inc...............  Initial Comments of     April 6, 2007.
                                 Newgistics, Inc.
Newspaper Association of        Comments of the         March 30, 2007.
 America (NAA).                  Newspaper Association
                                 of America.
                                Reply Comments of the   May 7, 2007.
                                 Newspaper Association
                                 of America.
                                Comments of the         June 18, 2007.
                                 Newspaper Association
                                 of America on Second
                                 Advance Notice of
                                 Proposed Rulemaking.
                                Reply Comments of the   July 3, 2007.
                                 Newspaper Association
                                 of America on Second
                                 Advance Notice of
                                 Proposed Rulemaking.
Office of the Consumer          OCA Comments in         April 6, 2007.
 Advocate (OCA).                 Response to Advance
                                 Notice of Proposed
                                 Rulemaking on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking.
                                OCA Comments in Reply   May 7, 2007.
                                 to Those Filed in
                                 Response to Order No.
                                 2.
                                Office of the Consumer  June 18, 2007.
                                 Advocate Comments in
                                 Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Office of the Consumer  July 3, 2007.
                                 Advocate Reply
                                 Comments in Response
                                 to Second Advance
                                 Notice of Proposed
                                 Rulemaking on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Office of the Consumer  July 3, 2007.
                                 Advocate Comments in
                                 Response to
                                 Supplemental Comments
                                 of the United States
                                 Postal Service on the
                                 Classification
                                 Process.
Parcel Shippers Association     Comments of the Parcel  April 6, 2007,
 (PSA).                          Shippers Association.
                                Reply Comments of       May 7, 2007.
                                 Parcel Shippers
                                 Association to
                                 Comments of United
                                 Parcel Service.
                                Errata to Reply         May 8, 2007.
                                 Comments of Parcel
                                 Shippers Association
                                 to Comments of United
                                 Parcel Service.
                                Reply Comments of       May 8, 2007.
                                 Parcel Shippers
                                 Association to
                                 Comments of United
                                 Parcel Service and
                                 Comments of the
                                 Office of the
                                 Consumer Advocate
                                 [Revised Filing].
                                Response of the Parcel  June 18, 2007.
                                 Shippers Association
                                 to Second Advance
                                 Notice of Proposed
                                 Rulemaking.
                                Reply of Parcel         July 3, 2007.
                                 Shippers Association
                                 to Comments Filed in
                                 Response to Second
                                 Notice of Proposed
                                 Rulemaking.
Pepperdine University.........  Statement of John       June 28, 2007.
                                 Carper on Behalf of
                                 Pepperdine University
                                 at Los Angeles Field
                                 Hearing on June 28,
                                 2007.
Pitney Bowes Inc..............  Initial Comments of     April 6, 2007.
                                 John C. Panzar on
                                 Behalf of Pitney
                                 Bowes Inc. in
                                 Response to Advance
                                 Notice of Proposed
                                 Rulemaking on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Initial Comments of     April 6, 2007.
                                 Pitney Bowes Inc. in
                                 Response to Advance
                                 Notice of Proposed
                                 Rulemaking on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of       May 7, 2007.
                                 Pitney Bowes Inc. in
                                 Response to Advance
                                 Notice of Proposed
                                 Rulemaking on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking.

[[Page 50775]]

 
                                Initial Comments of     June 18, 2007.
                                 Pitney Bowes Inc. in
                                 Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of       July 3, 2007.
                                 Pitney Bowes Inc. in
                                 Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Statement of Michael    July 9, 2007.
                                 Monahan, Executive
                                 Vice President and
                                 President, Mailing
                                 Solutions and
                                 Services, on Behalf
                                 of Pitney Bowes Inc.
                                 at Wilmington,
                                 Delaware Field
                                 Hearing on July 9,
                                 2007.
Sprint-Nextel.................  Initial Comments of     April 6, 2007.
                                 Sprint-Nextel..
Stamps.com....................  Submission of Comments  April 6, 2007.
                                 of Stamps.com.
                                Reply Comments of       May 7, 2007.
                                 Stamps.com.
                                Stamps.com Comments...  June 18, 2007.
Tension Envelope Corporation..  Statement of William    June 26, 2007.
                                 S. Berkley, President
                                 and CEO, Tension
                                 Envelope Corporation
                                 at the Kansas City,
                                 Missouri Field
                                 Hearings on June 22,
                                 2007.
Time Warner Inc...............  Initial Comments of     April 6, 2007.
                                 Time Warner Inc. in
                                 Response to
                                 Commission Order No.
                                 2.
                                Reply Comments of Time  May 7, 2007.
                                 Warner Inc. to
                                 Initial Comments in
                                 Response to
                                 Commission Order No.
                                 2.
                                Comments of Time        June 18, 2007.
                                 Warner Inc. In
                                 Response to
                                 Commission Order No.
                                 15.
United Parcel Service (UPS)...  Comments of United      April 6, 2007.
                                 Parcel Service in
                                 Response to Advance
                                 Notice of Proposed
                                 Rulemaking on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of       May 7, 2007.
                                 United Parcel Service
                                 in Response to
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Comments of United      June 18, 2007.
                                 Parcel Service in
                                 Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
                                Reply Comments of       July 3, 2007.
                                 United Parcel Service
                                 in Response to Second
                                 Advance Notice of
                                 Proposed Rulemaking
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking.
United States Postal Service    Initial Comments of     April 6, 2007.
 (USPS).                         the United States
                                 Postal Service.
                                Reply Comments of the   May 7, 2007.
                                 United States Postal
                                 Service.
                                Initial Comments of     June 18, 2007.
                                 the United States
                                 Postal Service on the
                                 Second Advance Notice
                                 of Proposed
                                 Rulemaking.
                                Supplemental Comments   June 19, 2007.
                                 of the United States
                                 Postal Service on the
                                 Classification
                                 Process.
                                Reply Comments of the   July 3, 2007.
                                 United States Postal
                                 Service on the Second
                                 Advance Notice of
                                 Proposed Rulemaking.
Valpak Direct Marketing         Valpak Direct           April 6, 2007.
 Systems, Inc. and Valpak        Marketing Systems,
 Dealers' Association, Inc.      Inc. and Valpak
 (Valpak).                       Dealers' Association,
                                 Inc. Comments on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking in
                                 Response to
                                 Commission Order No.
                                 2.
                                Valpak Direct           May 7, 2007.
                                 Marketing Systems,
                                 Inc. and Valpak
                                 Dealers' Association,
                                 Inc. Reply Comments
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking in
                                 Response to
                                 Commission Order No.
                                 2.
                                Valpak Direct           June 18, 2007.
                                 Marketing Systems,
                                 Inc. and Valpak
                                 Dealers' Association,
                                 Inc. Comments on
                                 Regulations
                                 Establishing a System
                                 of Ratemaking in
                                 Response to
                                 Commission Order No.
                                 15.

[[Page 50776]]

 
                                Valpak Direct           July 3, 2007.
                                 Marketing Systems,
                                 Inc. and Valpak
                                 Dealers' Association,
                                 Inc. Reply Comments
                                 on Regulations
                                 Establishing a System
                                 of Ratemaking in
                                 Response to
                                 Commission Order No.
                                 15.
Williams-Sonoma Inc...........  Statement of James      June 28, 2007.
                                 West, Director,
                                 Postal and Government
                                 Affairs, on Behalf of
                                 Williams-Sonoma Inc.
                                 at Los Angeles Field
                                 Hearing on June 28,
                                 2007.
YourAuctionCompany.com........  Statement of Adam and   July 9, 2007.
                                 Wendy Leidhecker,
                                 Chief Executive
                                 Officers, on Behalf
                                 of
                                 YourAuctionCompany.com m at Wilmington,
                                 Delaware Field
                                 Hearing on July 9,
                                 2007.
------------------------------------------------------------------------

List of Subjects

39 CFR Part 3001

    Administrative practice and procedure, Confidential business 
information, Freedom of information, Sunshine Act.

39 CFR Part 3010

    Administrative practice and procedure, Postal Service.

39 CFR Part 3015

    Administrative practice and procedure, Postal Service.

39 CFR Part 3020

    Administrative practice and procedure, Postal Service.

    By the Commission.
Steven W. Williams,
Secretary.

    For the reasons stated in the preamble, under the authority at 39 
U.S.C. 503, the Postal Regulatory Commission proposes to amend 39 CFR 
chapter III as follows:

PART 3001--RULES OF PRACTICE AND PROCEDURE

    1. Revise the authority citation for part 3001 to read as follows:

    Authority: 39 U.S.C. 404(d); 503; 3622; 3633; 3661, 3652.

    2. Amend Sec.  3001.5 as follows:
    a. Revise paragraphs (r) and (s); and
    b. Add paragraphs (t) and (u).

Subpart A--Rules of General Applicability


Sec.  3001.5  Definitions.

* * * * *
    (r) Negotiated service agreement means a written contract, to be in 
effect for a defined period of time, between the Postal Service and a 
mailer, that provides for customer-specific rates or fees and/or terms 
of service in accordance with the terms and conditions of the contract. 
A negotiated service agreement is not a rate of general applicability.
    (s) Postal service refers to the delivery of letters, printed 
matter, or mailable packages, including acceptance, collection, 
sorting, transportation, or other functions ancillary thereto.
    (t) Product means a postal service with a distinct cost or market 
characteristic for which a rate or rates are, or may reasonably be, 
applied.
    (u) Rate or class of general applicability means a rate or class 
that is available to all mailers equally on the same terms and 
conditions.
    3. Add part 3010 to read as follows:

PART 3010--RULES APPLICABLE TO RATE ADJUSTMENTS FOR MARKET DOMINANT 
PRODUCTS

Subpart A--General Provisions
Sec.
3010.1 Applicability.
3010.2 Types of rate adjustments for market dominant products.
3010.3 Type 1-A rate adjustment--in general.
3010.4 Type 1-B rate adjustment--in general.
3010.5 Type 2 rate adjustment--in general.
3010.6 Type 3 rate adjustment--in general.
3010.7 Schedule of regular rate changes.
Subpart B--Rules for Rate Adjustments for Rates of General 
Applicability (Type 1 Rate Adjustments)
3010.10 Procedures.
3010.11 Limit on size of rate increases.
3010.12 Source of CPI-U data for purposes of annual limitation.
3010.13 Proceedings for Type 1-A and Type 1-B rate adjustment 
filings.
3010.14 Contents of notice of rate adjustment.
Subpart C--Rules for Applying the Price Cap
3010.20 Test for compliance with the annual limitation.
3010.21 Calculation of annual limitation.
3010.22 Calculation of less than annual limitation.
3010.23 Calculation of percentage change in rates.
3010.24 Treatment of volume associated with negotiated service 
agreements.
3010.25 Limitation on unused rate adjustment authority rate 
adjustments.
3010.26 Calculation of unused rate adjustment authority.
3010.27 Application of unused rate adjustment authority.
3010.28 Maximum size of unused rate adjustment authority rate 
adjustments.
Subpart D--Rules for Rate Adjustments for Negotiated Service Agreements 
(Type 2 Rate Adjustments)
3010.40 Negotiated service agreements.
3010.41 Procedures.
3010.42 Contents of notice of agreement in support of a negotiated 
service agreement.
3010.43 Data collection plan.
Subpart E--Rules for Rate Adjustments for Exigent Circumstances (Type 3 
Rate Adjustments)
3010.60 Applicability.
3010.61 Contents of exigent requests.
3010.62 Supplemental information.
3010.63 Treatment of unused rate adjustment authority.
3010.64 Expeditious treatment of exigent requests.
3010.65 Special procedures applicable to exigent requests.
3010.66 Deadline for Commission decision.

    Authority: 39 U.S.C. 503; 3622.

Subpart A--General Provisions


Sec.  3010.1  Applicability.

    The rules in this part implement provisions in the Postal 
Accountability and Enhancement Act (PAEA) establishing ratesetting 
policies and procedures for market dominant products. With the 
exception of exigency-based rate adjustments, these procedures allow a 
minimum of 45 days for advance public notice of the Postal Service's 
planned rate adjustments and the Commission's assessment of their 
compliance with provisions establishing an annual limitation, unused 
rate adjustment authority, or standards for

[[Page 50777]]

negotiated service agreements, as applicable. Exigency-based rate 
adjustments require the Postal Service to file a formal request with 
the Commission and are subject to special procedures.


Sec.  3010.2  Types of rate adjustments for market dominant products.

    (a) There are four types of rate adjustments for market dominant 
products. A Type 1-A rate adjustment, authorized under 39 U.S.C. 
3622(d)(1)(D), is based on the statutory annual limitation. A Type 1-B 
rate adjustment, authorized under 39 U.S.C. 3622(d)(2)(C), is based on 
an exception to the annual limitation, and is referred to as unused 
rate adjustment authority. A Type 2 rate adjustment, authorized under 
39 U.S.C. 3622(c)(10), is based on a negotiated service agreement. A 
Type 3 rate adjustment, authorized under 39 U.S.C. 3622(d)(1)(E), is 
based on exigent circumstances.
    (b) Upon the establishment of unused rate adjustment authority in 
any class, the Postal Service shall devise and maintain a schedule that 
tracks the establishment and subsequent use of unused rate adjustment 
authority.
    (c) The Postal Service may combine Types 1-A, 1-B and 2 rate 
adjustments for purposes of filing with the Commission.


Sec.  3010.3  Type 1-A rate adjustment--in general.

    (a) A Type 1-A rate adjustment represents the usual type of 
adjustment to rates of general applicability.
    (b) A Type 1-A rate adjustment may result in a rate adjustment that 
is less than or equal to the annual limitation, but may not exceed the 
annual limitation.
    (c) A Type 1-A rate adjustment for any class that is less than the 
applicable change in CPI-U results in unused rate adjustment authority 
associated with that class. Part or all of the unused rate adjustment 
authority may be used in a subsequent adjustment for that class, 
subject to the expiration terms in Sec.  3010.26(d).


Sec.  3010.4  Type 1-B rate adjustment--in general.

    (a) A Type 1-B rate adjustment is a rate adjustment which uses 
unused rate adjustment authority in whole or in part. A rate adjustment 
using unused rate adjustment authority may not result in a rate that 
exceeds the applicable annual limitation plus 2 percentage points.
    (b) Unused rate adjustment authority in each class may be applied 
to rate adjustments in the same class for up to 5 years.


Sec.  3010.5  Type 2 rate adjustment--in general.

    A negotiated service agreement rate adjustment entails a rate 
adjustment negotiated between the Postal Service and a customer or 
group of customers.


Sec.  3010.6  Type 3 adjustment--in general.

    (a) A Type 3 rate adjustment is a request for an exigency-based 
rate adjustment. It is authorized only when justified by exceptional or 
extraordinary circumstances.
    (b) An exigency-based rate adjustment is not subject to the 
inflation-based limitation or the restrictions on the use of unused 
rate adjustment authority, and does not implement a negotiated service 
agreement.
    (c) A Postal Service request for a Type 3 rate adjustment is 
subject to public participation and Commission review within 90 days.


Sec.  3010.7  Schedule of regular rate changes.

    (a) The Postal Service shall maintain on file with the Commission a 
Schedule for Regular and Predictable Rate Changes. The Commission shall 
display the Schedule for Regular and Predictable Rate Changes on the 
Commission Web site, http://www.prc.gov.
    (b) The Schedule for Regular and Predictable Rate Changes shall 
provide mailers with estimated implementation dates for future Type 1-A 
rate changes for each separate class of mail, should such changes be 
necessary and appropriate. Rate changes will be scheduled at specified 
regular intervals.
    (c) The Schedule for Regular and Predictable Rate Changes shall 
provide an explanation that will allow mailers to predict with 
reasonable accuracy the amounts of future scheduled rate changes.
    (d) The initial Schedule for Regular and Predictable Rate Changes 
must be filed within 90 days of the effective date of this rule. The 
Postal Service should balance its financial and operational needs with 
the convenience of mailers of each class of mail in developing the 
schedule.
    (e) Whenever the Postal Service deems it appropriate to change the 
Schedule for Regular and Predictable Rate Changes, it shall file a 
revised schedule and explanation with the Commission.
    (f) The Postal Service may, for good cause shown, vary rate 
adjustments from those estimated by the Schedule for Regular and 
Predictable Rate Changes. In such case, the Postal Service should 
provide a succinct explanation for such variation with its Type 1-A 
filing. No explanation is required for changes involving smaller than 
predicted rate adjustments.

Subpart B--Rules for Rate Adjustments for Rates of General 
Applicability (Type 1 Rate Adjustments)


Sec.  3010.10  Procedures.

    (a) The Postal Service, in every instance in which it determines to 
exercise its statutory authority to make a Type 1-A or Type 1-B rate 
adjustment for a market dominant postal product shall:
    (1) Provide public notice in a manner reasonably designed to inform 
the mailing community and the general public that it intends to change 
rates not later than 45 days prior to the intended implementation date; 
and
    (2) Transmit a notice of rate adjustment to the Commission no later 
than 45 days prior to the intended rate implementation date.
    (b) The Postal Service is encouraged to provide public notice and 
to submit its notice of rate adjustment as far in advance of the 45-day 
minimum as practicable, especially in instances where the intended 
price changes include classification changes or operations changes 
likely to have material impact on mailers.


Sec.  3010.11  Limit on size of rate increases.

    Rate increases for each class of market dominant products in any 
12-month period are limited.
    (a) Rates of general applicability are subject to an inflation-
based limitation computed using CPI-U values as detailed in Sec.  
3010.12.
    (b) An exception to the inflation-based limitation allows a limited 
annual recapture of unused rate authority. The amount of unused rate 
authority is measured separately for each class of mail.
    (c) In any 12-month period the inflation-based limitation combined 
with the allowable recapture of unused rate authority equals the price 
cap applicable to each class of mail.


Sec.  3010.12  Source of CPI-U data for purposes of annual limitation.

    The monthly CPI-U values needed for the calculation of the annual 
limitation under this part shall be obtained from the Bureau of Labor 
Statistics (BLS) Consumer Price Index--All Urban Consumers, U.S. All 
Items, Not Seasonally Adjusted, Base Period 1982-84 = 100. The current 
Series ID for the index is ``CUUR0000SA0.''

[[Page 50778]]

Sec.  3010.13  Proceedings for Type 1-A and Type 1-B rate adjustment 
filings.

    (a) The Commission will establish a docket for each rate adjustment 
filing, promptly publish notice of the filing in the Federal Register, 
post the filing on its Web site, and allow 20 days from the date of the 
filing for public comment.
    (b) Public comments should address:
    (1) Whether the planned rate adjustments measured using the formula 
established in Sec.  3010.21(b) are at or below the annual limitation 
established in Sec.  3010.11; and
    (2) Whether the planned rate adjustments are consistent with the 
policies of 39 U.S.C. 3622 and any subsequent amendments thereto.
    (c) Within 14 days of the conclusion of the public comment period 
the Commission will determine whether the planned rate adjustments are 
consistent with the test for compliance with the annual limitation and 
issue a notice and order announcing its findings.
    (1) If the planned rate adjustments are in compliance with the 
annual limitation and, if applicable, with the exception for unused 
rate adjustment authority, they may take effect; or
    (2) If the planned rate adjustments are not in compliance with the 
annual limitation or with the exception for unused rate adjustment 
authority, the Commission shall explain the basis of its determination.
    (d) If planned rate adjustments are not in compliance with the 
annual limitation or with the exception for unused rate adjustment 
authority, the Postal Service will submit an amended notice of rate 
adjustment and describe the modifications to its planned rate 
adjustments that will bring its rate adjustments into compliance. An 
amended notice of rate adjustment shall be accompanied by sufficient 
explanatory information to show that all deficiencies identified by the 
Commission have been corrected.
    (e) The Commission will review any amended notice of rate 
adjustment for compliance with the annual limitation and the exception 
for unused rate adjustment authority and within 14 days issue a notice 
and order announcing its findings.
    (1) If the planned rate adjustments are in compliance with the 
annual limitation or, if applicable, with the exception for unused rate 
adjustment authority, they may take effect. However, no rate shall take 
effect until 45 days after the Postal Service files a notice of rate 
adjustment specifying that rate.
    (2) If the planned rate adjustments in an amended notice of rate 
adjustment are found to be not in compliance with the annual limitation 
or, if applicable, with the exception for unused rate adjustment 
authority, the Commission shall explain the basis of its determination 
and suggest an appropriate remedy.


Sec.  3010.14  Contents of notice of rate adjustment.

    (a) General. The Postal Service notice of rate adjustment must 
include the following information:
    (1) A schedule of the proposed rates;
    (2) The planned effective date(s) of the proposed rates;
    (3) A representation or evidence that public notice of the planned 
changes has been issued or will be issued at least 45 days before the 
effective date(s) for the proposed new rates; and
    (4) The identity of a responsible Postal Service official who will 
be available to provide prompt responses to requests for clarification 
from the Commission.
    (b) Supporting technical information and justifications. The notice 
of rate adjustment shall be accompanied by:
    (1) The amount of the applicable change in CPI-U calculated as 
required by Sec.  3010.21 or Sec.  3010.22, as appropriate. This 
information must be supported by workpapers in which all calculations 
are shown, and all input values including all relevant CPI-U values are 
listed with citations to the original sources.
    (2) A schedule showing unused rate authority available for each 
class of mail displayed by class and available amount for each of the 
preceding 5 years. This information must be supported by workpapers in 
which all calculations are shown.
    (3) The percentage change in rates for each class of mail 
calculated as required by Sec.  3010.23. This information must be 
supported by workpapers in which all calculations are shown, and all 
input values including current rates, new rates, and billing 
determinants are listed with citations to the original sources.
    (4) The amount of new unused rate authority, if any, that will be 
generated by the rate adjustment calculated as required by Sec.  
3010.26. All calculations are to be shown with citations to the 
original sources. If new unused rate authority will be generated for a 
class of mail that is not expected to cover its attributable costs, the 
Postal Service should explain the rationale underlying this rate 
adjustment.
    (5) A schedule of the workshare discounts included in the proposed 
rates, and a companion schedule listing the avoided costs that underlie 
each such discount. The avoided cost figures must be developed from the 
most recent PRC Annual Compliance Report. This information must be 
supported by workpapers in which all calculations are shown, and all 
input values are listed with citations to the original sources.
    (6) Separate justification for all proposed workshare discounts 
that exceed avoided costs. Each such justification shall reference 
applicable reasons identified in 39 U.S.C. 3622(e)(2) or (3). The 
Postal Service shall also identify and explain discounts that are set 
substantially below avoided costs and explain any relationship between 
discounts that are above and those that are below avoided costs.
    (7) A discussion of how the proposed rates will help achieve the 
objectives listed in 39 U.S.C. 3622(b) and properly take into account 
the factors listed in 39 U.S.C. 3622(c).
    (8) Such other information as the Postal Service believes will 
assist the Commission to issue a timely determination of whether the 
requested increases are consistent with applicable statutory policies.
    (c) New workshare discounts. Whenever the Postal Service 
establishes a new workshare discount rate, it must include with its 
filing:
    (1) A statement explaining its reasons for establishing the 
discount;
    (2) All data, economic analyses, and other information believed to 
justify the discount; and
    (3) A certification based on comprehensive, competent analyses that 
the discount will not adversely affect either the rates or the service 
levels of users of postal services who do not take advantage of the 
discount.
    (d) Information required only when Type 1-B rate adjustments are 
proposed. The notice of rate adjustment shall identify for each 
affected class how much existing unused rate authority is used in the 
proposed rates calculated as required by Sec.  3010.27. All 
calculations are to be shown, including citations to the original 
sources.

Subpart C--Rules for Applying the Price Cap


Sec.  3010.20  Test for compliance with the annual limitation.

    The appropriate annual limitation shall be applied to a measure of 
the rates paid by mail sent in each class for which rate adjustments 
are to be made to determine whether planned rates are consistent with 
the annual limitation.


Sec.  3010.21  Calculation of annual limitation.

    The calculation of an annual limitation involves three steps. 
First, a simple average CPI-U index is

[[Page 50779]]

calculated by summing the most recently available 12 monthly CPI-U 
values from the date the Postal Service files its notice of rate 
adjustment and dividing the sum by 12 (Recent Average). Then, a second 
simple average CPI-U index is similarly calculated by summing the 12 
monthly CPI-U values immediately preceding the Recent Average and 
dividing the sum by 12 (Base Average). Finally, the annual limitation 
is calculated by dividing the Recent Average by the Base Average and 
subtracting 1 from the quotient. The result is expressed as a 
percentage. The formula for calculating an annual limitation is as 
follows: Annual Limitation = (Recent Average/Base Average) - 1.


Sec.  3010.22  Calculation of less than annual limitation.

    (a) If a notice of rate adjustment is filed less than 1 year after 
the last Type 1-A or Type 1-B notice of rate adjustment applicable to 
an affected class of mail, then the annual limitation will recognize 
the rate increases that have occurred during the preceding 12 months. 
When the effects of those increases are removed, the remaining partial 
year limitation is the applicable restriction on rate increases.
    (b) The applicable partial year limitation is calculated in two 
steps. First, a simple average CPI-U index is calculated by summing the 
12 most recently available monthly CPI-U values from the date the 
Postal Service files its notice of rate adjustment and dividing the sum 
by 12 (Recent Average). The partial year limitation is then calculated 
by dividing the Recent Average by the Recent Average from the most 
recent previous notice of rate adjustment (Previous Recent Average) 
applicable to each affected class of mail and subtracting 1 from the 
quotient. The result is expressed as a percentage.
    (c) The formula for calculating the partial year limitation for a 
notice of rate adjustment filed less than 1 year after the last notice 
is as follows: Partial Year Limitation = (Recent Average/Previous 
Recent Average) - 1.


Sec.  3010.23  Calculation of percentage change in rates.

    (a) The term rate cell as applied in the test for compliance with 
the annual limitation shall apply to each and every separate rate 
identified in any applicable notice of rate adjustment for rates of 
general applicability. Thus, seasonal or temporary rates, for example, 
shall be identified and treated as rate cells separate and distinct 
from the corresponding non-seasonal or permanent rates.
    (b) For each class of mail, the percentage change in rates is 
calculated in three steps. First, the volume of each rate cell in the 
class is multiplied by the current rate for the respective cell and the 
resulting products are summed. In the case of seasonal or temporary 
rates, the most recently applied rate shall be considered the current 
rate. Then, the same set of rate cell volumes are multiplied by the 
corresponding planned rate for each cell and the resulting products are 
summed. Finally, the percentage change in rates is calculated by 
dividing the results of the first step by the results of the second 
step and subtracting 1 from the quotient. The result is expressed as a 
percentage.
    (c) The formula for calculating the percentage change in rates for 
a class described in paragraph (b) of this section is as follows:
    Percentage change in rates =
    [GRAPHIC] [TIFF OMITTED] TP04SE07.006
    

N = number of rate cells in the class
i = denotes a rate cell (i = 1, 2, ..., N)
R<INF>i n</INF> = planned rate of rate cell i
R<INF>i c</INF> = current rate of rate cell i
V<INF>i</INF> = volume of rate cell i

    (d) The volumes for each rate cell shall be obtained from the most 
recent available 12 months of Postal Service billing determinants. The 
Postal Service shall make reasonable adjustments to the billing 
determinants to account for the effects of classification changes such 
as the introduction, deletion, or redefinition of rate cells. Whenever 
possible, adjustments shall be based on known mail characteristics. The 
Postal Service shall identify and explain all adjustments. All 
information and calculations relied upon to develop the adjustments 
shall be provided together with an explanation of why the adjustments 
are appropriate.


Sec.  3010.24  Treatment of volume associated with negotiated service 
agreements.

    (a) Mail volumes sent at non-tariff rates under negotiated service 
agreements are to be included in the calculation of percentage change 
in rates as though they paid the appropriate rates of general 
applicability. Where it is impractical to identify the rates of general 
applicability (e.g., because unique rate categories are created for a 
mailer), the volumes associated with the mail sent under the terms of 
the negotiated service agreement shall be excluded from the calculation 
of percentage change in rates.
    (b) The Postal Service shall identify and explain all assumptions 
it makes with respect to the treatment of negotiated service agreements 
in the calculation of the percentage change in rates and provide the 
rationale for its assumptions.


Sec.  3010.25  Limitation on unused rate adjustment authority rate 
adjustments.

    Unused rate adjustment authority rate adjustments may only be 
applied together with inflation-based limitation rate adjustments or 
when inflation-based limitation rate adjustments are not possible. 
Unused rate adjustment authority rate adjustments may not be used in 
lieu of an inflation-based limitation rate adjustment.


Sec.  3010.26  Calculation of unused rate adjustment authority.

    (a) Unused rate adjustment authority accrues during the entire 
period between Type 1 rate adjustments.
    (b) When notices of rate adjustments are filed 12 months apart or 
less, either the annual or partial year limitation (developed pursuant 
to Sec.  3010.21(a) or Sec.  3010.22(b) respectively) is used to 
measure the accrued unused rate authority. In either circumstance, the 
new unused rate authority for each class is equal to the difference 
between the maximum allowable percentage change in rates under the 
applicable rate limitation and the actual percentage change in rates 
for that class.
    (c) When a notice of rate adjustment is filed more than 12 months 
after the previous notice of rate adjustment, unused rate authority is 
computed in three steps.
    (1) The unused rate authority for the 12 months represented by the 
annual limitation is computed as described in paragraph (b) of this 
section.
    (2) The additional unused rate authority accrued is measured by 
dividing the Base Average applicable to the instant notice of rate 
adjustment (as developed pursuant to Sec.  3010.21(a)) by the Recent 
Average utilized in the previous notice of rate adjustment (as 
developed pursuant to Sec.  3010.21(a)) and subtracting 1 from the 
quotient. The result is expressed as a percentage.
    (3) The results from step one and step two are added together.
    (d) Unused rate adjustment authority lapses 5 years after the date 
of filing of the notice of rate adjustment leading to its computation.


Sec.  3010.27  Application of unused rate adjustment authority.

    When the percentage change in rates for a class is greater than the 
applicable annual limitation, then the difference between the 
percentage change in rates

[[Page 50780]]

for the class and the price cap shall be subtracted from the existing 
unused rate authority for the class, using a first-in, first-out (FIFO) 
method, beginning 5 years before the instant notice.


Sec.  3010.28  Maximum size of unused rate adjustment authority rate 
adjustments.

    Unused rate adjustment authority rate adjustments for any class may 
not exceed the applicable annual limitation described in Sec.  3010.21 
plus the lesser of:
    (a) 2 percent; or
    (b) The sum of any unused rate adjustment authority for that class.

Subpart D--Rules for Rate Adjustments for Negotiated Service 
Agreements (Type 2 Rate Adjustments)


Sec.  3010.40  Negotiated service agreements.

    In administering this subpart, it shall be the objective of the 
Commission to allow implementation of negotiated service agreements 
that satisfy the statutory requirements of 39 U.S.C. 3622(c)(10) 
mandating that special classifications:
    (a) Negotiated service agreements must either:
    (1) Improve the net financial position of the Postal Service (39 
U.S.C. 3622(c)(10)(A)(i)), or
    (2) Enhance the performance of operational functions (39 U.S.C. 
3622(c)(10)(A)(ii)).
    (b) Negotiated service agreements may not cause unreasonable harm 
to the marketplace (39 U.S.C. 3622(c)(10)(B)).


Sec.  3010.41  Procedures.

    The Postal Service, in every instance in which it determines to 
exercise its statutory authority to make a Type 2 rate adjustment for a 
market dominant postal product shall provide public notice in a manner 
reasonably designed to inform the mailing community and the general 
public that it intends to change rates not later than 45 days prior to 
the intended implementation date; and transmit a notice of agreement to 
the Commission no later than 45 days prior to the intended rate 
implementation date.


Sec.  3010.42  Contents of notice of agreement in support of a 
negotiated service agreement.

    (a) Whenever the Postal Service proposes to establish or change 
rates or fees and/or the Mail Classification Schedule based on a 
negotiated service agreement, the Postal Service shall file with the 
Commission a notice of agreement. This shall include at a minimum:
    (b) General. Each notice of agreement will include:
    (1) A copy of the negotiated service agreement;
    (2) The planned effective date(s) of the proposed rates;
    (3) A representation or evidence that public notice of the planned 
changes has been issued or will be issued at least 45 days before the 
effective date(s) for the proposed new rates; and
    (4) The identity of a responsible Postal Service official who will 
be available to provide prompt responses to requests for clarification 
from the Commission.
    (5) A statement identifying all parties to the agreement and a 
description clearly explaining the operative components of the 
agreement.
    (c) Details regarding the expected improvements in the net 
financial position or operations of the Postal Service. The projection 
of change in net financial position as a result of the agreement shall 
include for each year of the agreement:
    (1) The estimated mailer-specific costs, volumes, and revenues of 
the Postal Service absent the implementation of the negotiated service 
agreement;
    (2) The estimated mailer-specific costs, volumes, and revenues of 
the Postal Service which result from implementation of the negotiated 
service agreement; and
    (3) An analysis of the effects of the negotiated service agreement 
on the contribution to institutional costs from mailers not party to 
the agreement.
    (4) If mailer-specific costs are not available, the source and 
derivation of the costs that are used shall be provided, together with 
a discussion of the currency and reliability of those costs and their 
suitability as a proxy for the mailer-specific costs.
    (d) An identification of each component of the agreement expected 
to enhance the performance of mail preparation, processing, 
transportation or other functions in each year of the agreement, and a 
discussion of the nature and expected impact of each such enhancement.
    (e) Details regarding any and all actions (performed or to be 
performed) to assure that the agreement will not result in unreasonable 
harm to the marketplace.
    (f) Such other information as the Postal Service believes will 
assist the Commission to issue a timely determination of whether the 
requested increases are consistent with applicable statutory policies.


Sec.  3010.43  Data collection plan.

    The Postal Service shall include with any notice of agreement a 
detailed plan for providing data or information on actual experience 
under the agreement sufficient to allow evaluation of whether the 
negotiated service agreement operates in compliance with 39 U.S.C. 
3622(c)(10). This shall include, at a minimum, a plan for providing the 
following annualized information on a yearly basis within 60 days of 
the date of implementation of a proposed agreement:
    (a) The change in net financial position as a result of the 
agreement. This calculation shall include for each year of the 
agreement:
    (1) The actual mailer-specific costs, volumes, and revenues of the 
Postal Service; and
    (2) An analysis of the effects of the negotiated service agreement 
on the net overall contribution to the institutional costs of the 
Postal Service.
    (3) If mailer-specific costs are not available, the source and 
derivation of the costs that are used shall be provided, including a 
discussion of the currency and reliability of those costs, and their 
suitability as a proxy for the mailer-specific costs.
    (b) A discussion of the changes in operations of the Postal Service 
that have resulted from the agreement. This shall include, for each 
year of the agreement, identification of each component of the 
agreement known to enhance the performance of mail preparation, 
processing, transportation, or other functions in each year of the 
agreement.
    (c) An analysis of the impact of the negotiated service agreement 
on the marketplace, including a discussion of any and all actions taken 
to protect the marketplace from unreasonable harm.

Subpart E--Rules for Rate Adjustments in Exigent Circumstances 
(Type 3 Rate Adjustments)


Sec.  3010.60  Applicability.

    The Postal Service may request to increase rates for market 
dominant products in excess of the annual limitation on the percentage 
changes in rates described in Sec.  3010.11(c) due to extraordinary or 
exceptional circumstances. Such requests will be known as exigent 
requests.


Sec.  3010.61  Contents of exigent requests.

    (a) Each exigent request shall include the following:
    (1) A schedule of the proposed rates;
    (2) Calculations quantifying the increase for each affected product 
and class;
    (3) A full discussion of the extraordinary or exceptional 
circumstance(s) giving rise to the request, and a complete explanation 
of how both the requested overall increase,

[[Page 50781]]

and the specific rate increases requested, relate to those 
circumstances;
    (4) A full discussion of why the requested increases are necessary 
to enable the Postal Service, under best practices of honest, efficient 
and economical management, to maintain and continue the development of 
postal services of the kind and quality adapted to the needs of the 
United States;
    (5) A full discussion of why the requested increases are reasonable 
and equitable as between types of users of market dominant products;
    (6) An explanation of when the exigent increase will be rescinded. 
If the period that the exigent increases will be in is intended to be 
permanent or temporary. If the increase is intended to be temporary, 
the request should include a discussion of when and under what 
circumstances the increase would be rescinded, in whole or in part;
    (7) A justification for exigent treatment which analyzes why the 
circumstance giving rise to the request was neither foreseeable nor 
avoidable by reasonable prior action; and
    (8) Such other information as the Postal Service believes will 
assist the Commission to issue a timely determination of whether the 
requested increases are consistent with applicable statutory policies.
    (b) The Postal Service shall identify one or more knowledgeable 
Postal Service official(s) who will be available to provide prompt 
responses to Commission requests for clarification related to each 
topic specified in Sec.  3010.61(a).


Sec.  3010.62  Supplemental information.

    The Commission may require the Postal Service to provide 
clarification of its request or to provide information in addition to 
that called for by Sec.  3010.61 in order to gain a better 
understanding of the circumstances leading to the request or the 
justification for the specific rate increases requested.


Sec.  3010.63  Treatment of unused rate adjustment authority.

    (a) Each exigent request will identify the unused rate authority 
for each class of mail as of the date of the request.
    (b) Pursuant to an exigent request, increases may use accumulated 
unused rate adjustment authority in amounts greater than the limitation 
described in Sec.  3010.28.
    (c) Exigent increases will exhaust all unused rate adjustment 
authority for each class of mail before imposing additional rate 
increases in excess of the price cap for any class of mail.


Sec.  3010.64  Expeditious treatment of exigent requests.

    Requests under this subpart seek rate relief required by 
extraordinary or exceptional circumstances and will be treated with 
expedition at every stage. It is Commission policy to provide 
appropriate relief as quickly as possible consistent with statutory 
requirements and procedural fairness.


Sec.  3010.65  Special procedures applicable to exigent requests.

    (a) When the Commission receives a request for exigent rate 
increases, it will publish a notice in the Federal Register describing 
the request and inviting public participation.
    (b) The Commission will hold a public hearing on the Postal Service 
request. During the public hearing, responsible Postal Service 
officials will appear and respond under oath to questions from the 
Commissioners or their designees addressing previously identified 
aspects of the Postal Service's request and the supporting information 
provided in response to the topics specified in Sec.  3010.61(a).
    (c) Interested persons will be given an opportunity to submit to 
the Commission suggested relevant questions that might be posed during 
the public hearing. Such questions, and any explanatory materials 
submitted to clarify the purpose of the questions, should be filed in 
accordance with Sec.  3001.9, and will become part of the 
administrative record of the proceeding.
    (d) The timing and length of the public hearing will depend on the 
nature of the circumstances giving rise to the request and the clarity 
and completeness of the supporting materials provided with the request.
    (e) If the Postal Service is unable to provide adequate 
explanations during the public hearing, supplementary written or oral 
responses may be required.
    (f) Following the conclusion of the public hearings and submission 
of any supplementary materials interested persons will be given the 
opportunity to submit written comments on:
    (1) The sufficiency of the justification for an exigent rate 
increase;
    (2) The adequacy of the justification for increases in the amounts 
requested by the Postal Service; and
    (3) Whether the specific rate adjustments requested are reasonable 
and equitable.
    (g) An opportunity to submit written reply comments will be given 
to the Postal Service and other interested persons.


Sec.  3010.66  Deadline for Commission decision.

    The Commission will act expeditiously on the Postal Service 
request, taking into account all written comments. In every instance a 
Commission decision will be issued within 90 days of a Postal Service 
request for an exigent rate increase.
    4. Add part 3015 to read as follows:

PART 3015--REGULATION OF RATES FOR COMPETITIVE PRODUCTS

Sec.
3015.1 Scope.
3015.2 Increase in rates of general applicability.
3015.3 Decrease in rates of general applicability.
3015.4 Change in class of general applicability.
3015.5 Rate or class not of general applicability.
3015.6 Sufficiency of information.
3015.7 Standards for compliance.

    Authority: 39 U.S.C. 503; 3633.


Sec.  3015.1  Scope.

    Rules in this part are applicable to competitive products.


Sec.  3015.2  Increase in rates of general applicability.

    (a) When the Postal Service determines to increase a rate or rates 
of general applicability, it shall file notice of the increase with the 
Commission no later than the date of publication of the decision in the 
Federal Register concerning such change, but at least 30 days before 
the effective date of the increase.
    (b) The notice filed with the Commission shall include an 
explanation and justification for the change, the effective date, and a 
schedule of the changed rates.


Sec.  3015.3  Decrease in rates of general applicability.

    (a) When the Postal Service determines to decrease a rate or rates 
of general applicability, it shall file notice of the decrease with the 
Commission no later than the date of publication of the decision in the 
Federal Register concerning such change, but at least 30 days before 
the effective date of the decrease.
    (b) The notice filed with the Commission shall include an 
explanation and justification for the change, the effective date, and a 
schedule of the changed rates.
    (c) In addition to the notice, the Postal Service shall file with 
the Commission:
    (1) Sufficient annualized revenue and cost data to demonstrate that 
each effected competitive product will be in

[[Page 50782]]

compliance with 39 U.S.C. 3633(a)(2); and
    (2) A certified statement by a representative of the Postal Service 
attesting to the accuracy of the data submitted, and explaining why, 
following the change, competitive products in total will be in 
compliance with 39 U.S.C. 3633(a)(1) and (3).


Sec.  3015.4  Change in class of general applicability.

    (a) In the case of a change in class of general applicability, the 
Postal Service shall file notice of the change with the Commission no 
later than the date of publication of the decision in the Federal 
Register, but at least 30 days before the effective date of the 
increase.
    (b) The notice filed with the Commission shall include an 
explanation and justification for the change, the effective date, and 
the record of proceedings regarding such decision.


Sec.  3015.5  Rate or class not of general applicability.

    (a) When the Postal Service determines to add or change a rate or 
class not of general applicability, it shall file notice of its 
decision with the Commission at least 15 days before the effective date 
of the change.
    (b) The notice filed with the Commission shall include an 
explanation and justification for the change, the effective date, the 
rate and class decision, and the record of proceedings regarding such 
decision.
    (c) In addition to the notice, the Postal Service shall file with 
the Commission:
    (1) Sufficient annualized revenue and cost data to demonstrate that 
each effected competitive product will be in compliance with 39 U.S.C. 
3633(a)(2); and
    (2) A certified statement by a representative of the Postal Service 
attesting to the accuracy of the data submitted, and explaining why, 
following the change, competitive products in total will be in 
compliance with 39 U.S.C. 3633(a)(1) and (3).


Sec.  3015.6  Sufficiency of information.

    If, after review of the information submitted pursuant to this 
part, the Commission determines additional information is necessary to 
enable it to evaluate whether competitive products will be in 
compliance with 39 U.S.C. 3633(a), it may, in its discretion, require 
the Postal Service to provide additional information as deemed 
necessary.


Sec.  3015.7  Standards for compliance.

    For purposes of determining competitive products' compliance with 
39 U.S.C. 3633, the Commission will apply the following standards:
    (a) Incremental costs will be used to test for cross-subsidies by 
market dominant products of competitive products. To the extent that 
incremental cost data are unavailable, the Commission will use 
competitive products' attributable costs supplemented to include 
causally related, group-specific costs to test for cross-subsidies.
    (b) Each competitive product must recover its attributable costs as 
defined in 39 U.S.C. 3631(b).
    (c) Annually, on a fiscal year basis, the appropriate share of 
institutional costs to be recovered from competitive products 
collectively is, at a minimum, 5.5 percent of the Postal Service's 
total institutional costs.
    5. Add part 3020 to read as follows:

PART 3020--PRODUCT LISTS

Subpart A--Mail Classification Schedule
Sec.
3020.1 Applicability.
3020.10 General.
3020.11 Initial Mail Classification Schedule.
3020.12 Publication of the Mail Classification Schedule.
3020.13 Contents of the Mail Classification Schedule.
3020.14 Notice of change.
Subpart B--Requests Initiated by the Postal Service to Modify the 
Product Lists Described Within the Mail Classification Schedule
3020.30 General.
3020.31 Contents of a request.
3020.32 Supporting justification.
3020.33 Docket and notice.
3020.34 Review.
3020.35 Further proceedings.
Subpart C--Requests Initiated by Users of Mail to Modify the Product 
Lists Described Within the Mail Classification Schedule
3020.50 General.
3020.51 Contents of a request.
3020.52 Supporting justification.
3020.53 Docket and notice.
3020.54 Postal Service notice and reply.
3020.55 Review.
3020.56 Further proceedings.
Subpart D--Proposal of the Commission to Modify the Product Lists 
Described Within the Mail Classification Schedule
3020.70 General.
3020.71 Contents of a proposal.
3020.72 Supporting justification.
3020.73 Docket and notice.
3020.74 Postal Service notice and reply.
3020.75 Review.
3020.76 Further proceedings.
Subpart E--Requests Initiated by the Postal Service to Update the Mail 
Classification Schedule
3020.90 General.
3020.91 Modifications.
3020.92 Implementation.
Subpart F--Size and Weight Limitations for Mail Matter
3020.110 General.
3020.111 Limitations applicable to market dominant mail matter.
3020.112 Limitations applicable to competitive mail matter.

    Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682.

Subpart A--Mail Classification Schedule


Sec.  3020.1  Applicability.

    (a) The rules in this part provide for establishing a Mail 
Classification Schedule. The Mail Classification Schedule shall 
categorize postal products as either market dominant or competitive. As 
established, the market dominant and competitive product lists 
specified in the Mail Classification Schedule shall be consistent with 
the market dominant product list specified in 39 U.S.C. 3621(a) and the 
competitive product list specified in 39 U.S.C. 3631(a).
    (b) Once established, the Mail Classification Schedule may be 
modified subject to the procedures specified in this part. See part 
3025 of this chapter for rules applicable to Mail Classification 
Schedule modifications for market tests of experimental products.


Sec.  3020.10  General.

    The Mail Classification Schedule shall consist of two parts. Part 
One shall specify the list of market dominant products and include the 
explanatory information specified in Sec.  3020.13(a). Part Two shall 
specify the list of competitive products and include the explanatory 
information specified in Sec.  3020.13(b).


Sec.  3020.11  Initial Mail Classification Schedule.

    The Postal Service shall file with the Commission a proposed Mail 
Classification Schedule within 30 days of enactment of this rule. The 
proposed Mail Classification Schedule shall reflect the market dominant 
and competitive product lists as specified in 39 U.S.C. 3621(a) and 39 
U.S.C. 3631(a) respectively. The Commission shall cause notice of the 
Postal Service filing to be published in the Federal Register. The 
notice shall provide the opportunity for public comment. After 
consideration of the proposed Mail Classification Schedule and public 
comment, the Commission shall incorporate a Mail Classification 
Schedule into the Commission's rules,

[[Page 50783]]

and cause notice thereof to be published in the Federal Register. 
Thereafter, the Mail Classification Schedule may be modified as 
specified by Commission rule.


Sec.  3020.12  Publication of the Mail Classification Schedule.

    (a) Incorporation by reference. Section 552(a) of title 5 U.S.C., 
relating to the public information requirements of the Administrative 
Procedure Act, provides in pertinent part that ``* * * matter 
reasonably available to the class of persons affected thereby is deemed 
published in the Federal Register when incorporated by reference 
therein with the approval of the Director of the Federal Register.'' In 
conformity with that provision, and with 39 U.S.C. 503, and as provided 
in this part, the Postal Regulatory Commission hereby incorporates by 
reference in this part, the Mail Classification Schedule, a looseleaf 
document published and maintained by the Postal Regulatory Commission.
    (b) Availability of the Mail Classification Schedule. (1) Copies of 
the Mail Classification Schedule, both current and previous issues, are 
available during regular business hours for reference and public 
inspection at the Postal Regulatory Commission's Reading Room located 
at 901 New York Avenue, NW., Suite 200, Washington, DC 20268-0001. The 
Mail Classification Schedule, both current and previous issues, also 
are available on the Internet at http://www.prc.gov. A copy of the Mail 
Classification Schedule may be obtained by contacting the Postal 
Regulatory Commission's Docket Section in Washington, DC.
    (2) Interested persons may receive electronic notification of 
updates to the Mail Classification Schedule by contacting the Postal 
Regulatory Commission's Docket Section in Washington, DC.
    (3) Interested persons may inspect a copy of the Mail 
Classification Schedule at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.
    (c) Amendments to the Mail Classification Schedule. (1) Except 
final regulations published as provided in paragraph (c)(2) of this 
section, only notices rather than complete text of changes made to the 
Mail Classification Schedule are published in the Federal Register. 
These notices are published in the form of one summary transmittal 
letter for each issue of the Mail Classification Schedule. A complete 
issue of the Mail Classification Schedule, including the text of all 
changes published to date, will be filed with the Director, Office of 
the Federal Register.
    (2) When the Postal Regulatory Commission invites comments from the 
public on a proposed change to the Mail Classification Schedule, the 
proposed change and, if adopted, the full text of the final regulation 
is published in the Federal Register.
    (3) For references to amendments to the Mail Classification 
Schedule adopted under paragraph (c)(2) of this section after issuance 
of the most recent transmittal letter (termed Summary of Changes in the 
Mail Classification Schedule) listed below, see Sec.  3020.12(c) in the 
List of CFR sections affecting title 39 of the Code of Federal 
Regulations.

------------------------------------------------------------------------
                                                       Federal Register
  Transmittal letter for issue           Dated            publication
------------------------------------------------------------------------
1...............................  [TBD].............  [TBD FR TBD]
------------------------------------------------------------------------

    (d) [Reserved]


Sec.  3020.13  Contents of the Mail Classification Schedule.

    The Mail Classification Schedule shall provide:
    (a) The list of market dominant products, including:
    (1) The class of each market dominant product;
    (2) The description of each market dominant product;
    (3) A schedule listing for each market dominant product the current 
rates and fees;
    (4) Where applicable, the identification of a product as a special 
classification within the meaning of 39 U.S.C. 3622(c)(10) for market 
dominant products;
    (5) Where applicable, the identification of a product as an 
experimental product undergoing a market test; and
    (6) Where applicable, the identification of a product as a non-
postal product.
    (b) The list of competitive products, including:
    (1) The description of each competitive product;
    (2) A schedule listing for each competitive product of general 
applicability the current rates and fees;
    (3) The identification of each product not of general applicability 
within the meaning of 39 U.S.C. 3632(b)(3) for competitive products;
    (4) Where applicable, the identification of a product as an 
experimental product undergoing a market test; and
    (5) Where applicable, the identification of a product as a non-
postal product.


Sec.  3020.14  Notice of change.

    Whenever the Postal Regulatory Commission modifies the list of 
products in the market dominant category or the competitive category, 
it shall cause notice of such change to be published in the Federal 
Register. The notice shall:
    (a) Include the current list of market dominant products and the 
current list of competitive products appearing in the Mail 
Classification Schedule;
    (b) Indicate how and when the previous product lists have been 
modified; and
    (c) Describe other changes to the Mail Classification Schedule as 
necessary.

Subpart B--Requests Initiated by the Postal Service To Modify the 
Product Lists Described Within the Mail Classification Schedule


Sec.  3020.30  General.

    The Postal Service, by filing a request with the Commission, may 
propose a modification to the market dominant product list or the 
competitive product list appearing in the Mail Classification Schedule. 
For purposes of this part, modification shall be defined as adding a 
product to a list, removing a product from a list, or moving a product 
from one list to the other list.


Sec.  3020.31  Contents of a request.

    A request to modify the market dominant product list or the 
competitive product list shall:
    (a) Provide the name, and class if applicable, of each product that 
is the subject of the request;
    (b) Provide the name and class, if applicable, of each product that 
is the subject of the request;
    (c) Indicate whether the request proposes to add a product to the 
market dominant list or the competitive list, remove a product from the 
market dominant list or the competitive list, or transfer a product 
from the market

[[Page 50784]]

dominant list to the competitive list or from the competitive list to 
the market dominant list;
    (d) Indicate whether each product that is the subject of the 
request is:
    (1) A special classification within the meaning of 39 U.S.C. 
3622(c)(10) for market dominant products;
    (2) A product not of general applicability within the meaning of 39 
U.S.C. 3632(b)(3) for competitive products; or
    (3) A non-postal product.
    (e) Provide all supporting justification upon which the Postal 
Service proposes to rely; and
    (f) Include a copy of the applicable sections of the Mail 
Classification Schedule and the proposed changes therein in legislative 
format.


Sec.  3020.32  Supporting justification.

    Supporting justification shall be in the form of a statement from 
one or more knowledgeable Postal Service official(s) who sponsors the 
request and attests to the accuracy of the information contained within 
the statement. The justification shall:
    (a) Demonstrate why the change is in accordance with the policies 
and the applicable criteria of chapter 36 of 39 U.S.C.;
    (b) Explain why, as to market dominant products, the change is not 
inconsistent with each requirement of 39 U.S.C. 3622(d), and that it 
advances the objectives of 39 U.S.C. 3622(b), taking into account the 
factors of 39 U.S.C. 3622(c);
    (c) Explain why, as to competitive products, the addition, 
deletion, or transfer will not result in the violation of any of the 
standards of 39 U.S.C. 3633.
    (d) Verify that the change does not classify as competitive a 
product over which the Postal Service exercises sufficient market power 
that it can:
    (1) Set the price of such product substantially above costs;
    (2) Raise prices significantly;
    (3) Decrease quality; or
    (4) Decrease output without risk of losing a significant level of 
business to other firms offering similar products.
    (e) Explain whether or not each product that is the subject of the 
request is covered by the postal monopoly as reserved to the Postal 
Service under 18 U.S.C. 1696 subject to the exceptions set forth in 39 
U.S.C. 601;
    (f) Provide a description of the availability and nature of 
enterprises in the private sector engaged in the delivery of the 
product;
    (g) Provide any information available on the views of those who use 
the product on the appropriateness of the proposed modification;
    (h) Provide a description of the likely impact of the proposed 
modification on small business concerns; and
    (i) Include such information and data, and such statements of 
reasons and bases, as are necessary and appropriate to fully inform the 
Commission of the nature, scope, significance, and impact of the 
proposed modification.


Sec.  3020.33  Docket and notice.

    The Commission shall institute a docket for consideration of each 
request to modify the market dominant or the competitive product lists. 
The Commission shall cause notice of each docket to be published in the 
Federal Register, which includes:
    (a) A description of the request;
    (b) Direction to obtain further information in regard to the 
request, if any;
    (c) Direction for participation in the docket;
    (d) Designation of an officer of the Commission to represent the 
interests of the general public; and
    (e) Information regarding an opportunity for written comment 
addressing compliance with statutory provisions and applicable 
Commission rules in regard to the proposed modification.


Sec.  3020.34  Review.

    The Commission shall review the request and responsive comments. 
The Commission shall either:
    (a) Approve the request to modify the market dominant and 
competitive product lists;
    (b) Institute further proceedings to consider all or part of the 
request if it finds that there is substantial likelihood that the 
modification is inconsistent with statutory policies or Commission 
rules, and explain its reasons for not approving the request to modify 
the market dominant and competitive product lists;
    (c) Provide an opportunity for the Postal Service to modify its 
request; or
    (d) Direct other action as the Commission may consider appropriate.


Sec.  3020.35  Further proceedings.

    If the Commission determines that further proceedings are 
necessary, a conference shall be scheduled to consider the concerns 
expressed by the Commission. Written statements commenting on the 
Commission's concerns shall be requested, to be filed 7 days prior to 
the conference. Upon conclusion of the conference, the Commission shall 
promptly issue a ruling to:
    (a) Provide for a period of discovery to obtain further 
information;
    (b) Schedule a hearing on the record for further consideration of 
the request;
    (c) Explain the reasons for not going forward with additional 
proceedings and approve the request to modify the market dominant and 
competitive product lists; or
    (d) Direct other action as the Commission may consider appropriate.

Subpart C--Requests Initiated by Users of the Mail To Modify the 
Product Lists Described Within the Mail Classification Schedule


Sec.  3020.50  General.

    Users of the mail, by filing a request with the Commission, may 
propose a modification to the market dominant product list or the 
competitive product list appearing in the Mail Classification Schedule. 
For purposes of this part, modification shall be defined as adding a 
product to a list, removing a product from a list, or transferring a 
product from one list to the other list.


Sec.  3020.51  Contents of a request.

    A request to modify the market dominant product list or the 
competitive product list shall:
    (a) Provide the name, and class if applicable, of each product that 
is the subject of the request;
    (b) Indicate whether the request proposes to add a product to the 
market dominant list or the competitive list, remove a product from the 
market dominant list or the competitive list, or move a product from 
the market dominant list to the competitive list or from the 
competitive list to the market dominant list;
    (c) Indicate whether each product that is the subject of the 
request is:
    (1) A special classification within the meaning of 39 U.S.C. 
3622(c)(10) for market dominant products;
    (2) A product not of general applicability within the meaning of 39 
U.S.C. 3632(b) for competitive products; or
    (3) A non-postal product.
    (d) Provide all supporting justification upon which the proponent 
of the request proposes to rely; and
    (e) Include a copy of the applicable sections of the Mail 
Classification Schedule and the proposed changes therein in legislative 
format.


Sec.  3020.52  Supporting justification.

    Supporting justification shall be in the form of a statement from a 
knowledgeable proponent of the request who attests to the accuracy of 
the information contained within the statement. The justification 
shall:
    (a) Demonstrate why the change is in accordance with the policies 
and the

[[Page 50785]]

applicable criteria of chapter 36 of 39 U.S.C.;
    (b) Explain why, as to market dominant products, the change is not 
inconsistent with each requirement of 39 U.S.C. 3622(d), and that it 
advances the objectives of 39 U.S.C. 3622(b), taking into account the 
factors of 39 U.S.C. 3622(c);
    (c) Explain why, as to competitive products, the addition, 
deletion, or transfer will not result in the violation of any of the 
standards of 39 U.S.C. 3633.
    (d) Verify that the change does not classify as competitive a 
product over which the Postal Service exercises sufficient market power 
that it can:
    (1) Set the price of such product substantially above costs;
    (2) Raise prices significantly;
    (3) Decrease quality; or
    (4) Decrease output without risk of losing a significant level of 
business to other firms offering similar products.
    (e) Explain whether or not each product that is the subject of the 
request is covered by the postal monopoly, as reserved to the Postal 
Service under 18 U.S.C. 1696 subject to the exceptions set forth in 39 
U.S.C. 601;
    (f) Provide a description of the availability and nature of 
enterprises in the private sector engaged in the delivery of the 
product;
    (g) Provide any information available on the views of those who use 
the product on the appropriateness of the proposed modification;
    (h) Provide a description of the likely impact of the proposed 
modification on small business concerns; and
    (i) Include such information and data, and such statements of 
reasons and bases, as are necessary and appropriate to fully inform the 
Commission of the nature, scope, significance, and impact of the 
proposed modification.


Sec.  3020.53  Docket and notice.

    The Commission shall institute a docket for consideration of each 
request to modify the market dominant or the competitive product lists. 
The Commission shall cause notice of each docket to be published in the 
Federal Register, which includes:
    (a) A description of the request;
    (b) Direction to obtain further information in regard to the 
request, if any;
    (c) Direction for participation in the docket;
    (d) Designation of an officer of the Commission to represent the 
interests of the general public; and
    (e) Information regarding an opportunity for written comment 
addressing compliance with statutory provisions and applicable 
Commission rules in regard to the proposed modification.


Sec.  3020.54  Postal Service notice and reply.

    The Secretary of the Commission shall forward to the Postal Service 
a copy of the request. Within 28 days of the filing of the request, the 
Postal Service shall provide its preliminary views in regard to the 
request. The Postal Service may include suggestions for appropriate 
Commission action in response to the request.


Sec.  3020.55  Review.

    The Commission shall review the request, Postal Service reply, and 
public comment to determine whether the proposed modification to the 
market dominant and competitive product lists complies with applicable 
statutory requirements and the Commission's rules, and whether the 
proposed modification is consistent with the position of the Postal 
Service as expressed in its reply. The Commission shall either:
    (a) Approve the request to modify the market dominant and 
competitive product lists, but only to the extent the modification is 
consistent with the position of the Postal Service;
    (b) Reject the request;
    (c) Institute further proceedings to consider the request to modify 
the market dominant and competitive product lists; or
    (d) Direct other action as the Commission may consider appropriate.


Sec.  3020.56  Further proceedings.

    If the Commission determines that further proceedings are 
necessary, a conference shall be scheduled to consider the merits of 
going forward with the request. Upon conclusion of the conference, the 
Commission shall promptly issue a ruling to:
    (a) Provide for a period of discovery to obtain further 
information;
    (b) Schedule a hearing on the record for further consideration of 
the request;
    (c) Explain the reasons for not going forward with formal 
proceedings; or
    (d) Direct other action as the Commission may consider appropriate.

Subpart D--Proposal of the Commission To Modify the Product Lists 
Described Within the Mail Classification Schedule


Sec.  3020.70  General.

    The Commission, of its own initiative, may propose a modification 
to the market dominant product list or the competitive product list 
provided within the Mail Classification Schedule. For purposes of this 
part, modification shall be defined as adding a product to a list, 
removing a product from a list, or transferring a product from one list 
to the other list.


Sec.  3020.71  Contents of a proposal.

    A proposal to modify the market dominant product list or the 
competitive product list shall:
    (a) Provide the name, and class if applicable, of each product that 
is the subject of the proposal;
    (b) Indicate whether the proposal would add a product to the market 
dominant list or the competitive list, remove a product from the market 
dominant list or the competitive list, or move a product from the 
market dominant list to the competitive list or from the competitive 
list to the market dominant list;
    (c) Indicate whether each product that is the subject of the 
proposal is:
    (1) A special classification within the meaning of 39 U.S.C. 
3622(c)(10) for market dominant products;
    (2) A product not of general applicability within the meaning of 39 
U.S.C. 3632(b) for competitive products, or
    (3) A non-postal product.
    (d) Provide justification supporting the proposal; and
    (e) Include a copy of the applicable sections of the Mail 
Classification Schedule and the proposed changes therein in legislative 
format.


Sec.  3020.72  Supporting justification.

    Supporting justification shall:
    (a) Provide an explanation for initiating the docket;
    (b) Explain why, as to market dominant products, the change is not 
inconsistent with each requirement of 39 U.S.C. 3622(d), and that it 
advances the objectives of 39 U.S.C. 3622(b), taking into account the 
factors of 39 U.S.C. 3622(c);
    (c) Explain why, as to competitive products, the addition, 
subtraction, or transfer will not result in the violation of any of the 
standards of 39 U.S.C. 3633.
    (d) Verify that the change does not classify as competitive a 
product over which the Postal Service exercises sufficient market power 
that it can:
    (1) Set the price of such product substantially above costs;
    (2) Raise prices significantly;
    (3) Decrease quality;
    (4) Decrease output without risk of losing a significant level of 
business to other firms offering similar products.
    (e) Explain whether or not each product that is the subject of the 
request is covered by the postal monopoly as reserved to the Postal 
Service under 18

[[Page 50786]]

U.S.C. 1696 subject to the exceptions set forth in 39 U.S.C. 601;
    (f) Provide a description of the availability and nature of 
enterprises in the private sector engaged in the delivery of the 
product;
    (g) Provide any information available on the views of those who use 
the product involved on the appropriateness of the proposed 
modification;
    (h) Provide a description of the likely impact of the proposed 
modification on small business concerns; and
    (i) Include such information and data, and such statements of 
reasons and bases, as are necessary and appropriate to fully inform the 
Postal Service and users of the mail of the nature, scope, 
significance, and impact of the proposed modification.


Sec.  3020.73  Docket and notice.

    The Commission shall institute a docket for consideration of each 
proposal to modify the market dominant or the competitive product 
lists. The Commission shall cause notice of each docket to be published 
in the Federal Register, which includes:
    (a) A description of the proposal;
    (b) Direction to obtain further information in regard to the 
proposal, if any;
    (c) Direction for participation in the docket;
    (d) Designation of an officer of the Commission to represent the 
interests of the general public; and
    (e) Information regarding an opportunity for written comment 
addressing compliance with statutory provisions and applicable 
Commission rules in regard to the proposed modification.


Sec.  3020.74  Postal Service notice and reply.

    The Secretary of the Commission shall forward to the Postal Service 
a copy of the notice of proposal. Within 28 days of the filing of the 
proposal, the Postal Service shall provide its preliminary views in 
regard to the proposal. The Postal Service may include suggestions for 
appropriate further procedural steps.


Sec.  3020.75  Review.

    The Commission shall review the Postal Service reply and public 
comment. The Commission shall either:
    (a) Approve the proposal to modify the market dominant and 
competitive product lists, but only to the extent the modification is 
consistent with the position of the Postal Service;
    (b) Withdraw the proposal;
    (c) Institute further proceedings to consider the proposal, 
identifying relevant issues that may require further development; or
    (d) Direct other action as the Commission may consider appropriate.


Sec.  3020.76  Further proceedings.

    If the Commission determines that further proceedings are 
appropriate, a conference shall be scheduled to consider the merits of 
going forward with the proposal. Upon conclusion of the conference, the 
Commission shall promptly issue a ruling to:
    (a) Provide for a period of discovery to obtain further 
information;
    (b) Schedule a hearing on the record for further consideration of 
the proposal;
    (c) Explain the reasons for not going forward with formal 
proceedings; or
    (d) Direct other action as the Commission may consider appropriate.

Subpart E--Requests Initiated by the Postal Service To Conform the 
Mail Classification Schedule


Sec.  3020.90  General.

    The Postal Service shall assure that product descriptions in the 
Mail Classification Schedule accurately represent the current offerings 
of Postal Service products and services.


Sec.  3020.91  Modifications.

    The Postal Service shall submit corrections to product descriptions 
in the Mail Classification Schedule, that do not constitute a proposal 
to modify the market dominant product list or the competitive product 
list as defined in Sec.  3020.30, by filing notice of the proposed 
change with the Commission no later than 15 days prior to the effective 
date of the proposed change.


Sec.  3020.92  Implementation.

    The Commission shall review the proposed corrections for formatting 
and conformance with the structure of the Mail Classification Schedule, 
and subject to editorial changes, shall update the Mail Classification 
Schedule to coincide with the effective date of the proposed change.

Subpart F--Size and Weight Limitations for Mail Matter


Sec.  3020.110  General.

    Applicable size and weight limitations for mail matter shall appear 
in the Mail Classification Schedule as part of the description of each 
product.


Sec.  3020.111  Limitations applicable to market dominant mail matter.

    (a) The Postal Service shall inform the Commission of updates to 
size and weight limitations for market dominant mail matter by filing 
notice with the Commission 45 days prior to the effective date of the 
proposed update. The notice shall include a copy of the applicable 
sections of the Mail Classification Schedule and the proposed updates 
therein in legislative format.
    (b) The Commission shall provide notice of the proposed update in 
the Federal Register and seek public comment on whether the proposed 
update is in accordance with the policies and the applicable criteria 
of chapter 36 of 39 U.S.C.;
    (c) If the Commission finds the proposed update in accordance with 
the policies and the applicable criteria of chapter 36 of 39 U.S.C., 
the Commission shall review the proposed Mail classification Schedule 
language for formatting and conformance with the structure of the Mail 
classification Schedule, and subject to editorial changes, shall change 
the Mail Classification Schedule to coincide with the effective date of 
the proposed update.
    (d) If the Commission finds the proposed update not in accordance 
with the policies and the applicable criteria of chapter 36 of 39 
U.S.C., the Commission may direct other action as deemed appropriate.


Sec.  3020.112  Limitations applicable to competitive mail matter.

    The Postal Service shall notify the Commission of updates to size 
and weight limitations for competitive mail matter pursuant to subpart 
E of this part.

[FR Doc. 07-4269 Filed 8-31-07; 8:45 am]
BILLING CODE 7710-FW-P


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