Order 2013

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- 25 Served: July 31, 2013



### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION 

### OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation on the 31 st of July, 2013

INTRA ALASKA BU SH MAIL RATES

Under 49 U.S.C § 41901 et seq Docket OST

- 2003

- 14694

ORDER FINALIZING SHOW CAUSE ORDER Summary By this O rder, the Department makes final the rates tentatively set by Order 2013

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- 5, June 6, 2013, until on or about April 1 , 2014.

Background Order 2013

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- 5 directed the parties to show cause by June 26, 2013, why we should not make final the rates tentatively set by that Order. We received objections from only one party, the Postal Service, stating:

“The Postal Service respectfully disagrees with the Department’s tentative decision to exclude PenAir’s data as explained beginning on page 3 of the Order. ...the Postal Service insists that in order to properly gauge the true cost of any particular lane, t he Department ought to consider all movement and all associated data in determining mail rates. [The] inclusion of all available data for the next Bush mail rate adjustment will allow for an accurate and fair rate.”

Discussion Order 2013

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- 5 tentativel y found that

, as a statutory matter
, the Part 135 rate must exclude the data of carriers that are not B ush Part 135 P assenger C arriers. Beginning in January 2013

, PenAir no longer ope rated as a Bush Part 135 passenger carrier. However, the O rder found th at t hat fact was in sufficient, by itself, to exclude PenAir’s data, because PenAir had operate d as a Bush Part 135 P assenger C arrier during the entire base period at issue, October 1, 201 1 , through September 30, 201 2

. As Order 2013

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- 5 stated:- 2

-

“this [statutory] fact by itself is not dispositive as to whether we include or exclude PenAir’s results from the proposed rate, because PenAir did, in fact, operate as a bush passenger carrier for all of the time period on which the proposed rate would be based , namely the year ended September 30, 2012. Since PenAir only discontinued its Part 135 bush passenger operations in January 2013, the threshold issue is whether we should maintain the results of the historical period intact for the Part 135 class, or we should adjust those results to reflect changed conditions that we know will prevail during the effective period of the rate by excluding PenAir. There is no hard and fast precedent regarding how we should handle such circumstances.

We believe there are good reasons to maintain our policy of resolving this type of issue on a case

- by

- case basis. 1 [ 2 ] In this instance, we find it appropriate to exclude PenAir’s data from the calculation of the Part 135 rate. First, we must recognize that our fundamental a im is to set a mail rate that reflects the costs of transporting the mail in the prospective period. Second, as we recognized in Order 2011

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- 14, adding PenAir’s Metro costs to the Part 135 class rate produced a very significant change in the level of tha t rate. 3 Indeed, that was the underlying issue that caused nine months of objections and comments, and ultimately led the Department to construct a mileage taper as a means to ameliorate the anomalous and highly significant impact of adding PenAir’s long

- h aul, low

- cost operations to the short

- haul, high

- cost operations of the typical Part 135 operator

. 4 On that basis, we propose to exclude PenAir’s expenses from the prospe ctive rate.”

Decision T he Postal Service a rgued and Order 2011

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- 14 agreed that we should include PenAir’s data 5 in that rate period because all available operating carrier data should be included

. The Postal Service again makes that argument , as follows:

“The common desire for all participants in this process is fair and adequate compensation for the transportation of mail in Alaska. ....With this in mind, the Postal Service insists that in order to properly gauge the true cost of any particular

1 The issue is whether we include the expenses of a carrier that op er ated d u ring some or all of the base period but whose op e rations will be absent during the period when the rate will be in place. 2 This issue, of excluding data for carriers who no longer operate, is a subset of the much more general issue of whose data to include, and whose to exclude, in setting a mail rate. Other reasons we have used in the past have been unreliable carrier data. Also, Order 20 07

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- 17 excluded an entire year of carrier data when setting the trend because the industry structure changed so much because of the impact of the Rural Service Improvement Act of 2002

. 3 For many years we included the costs of those Metro a ircraft in the Part 121 cost pool because PenAir operated them under Part 121. When PenAir began to operate those aircraft under Part 135, we assigned them to the Part 135. 4 See also Order 2008

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- 28, which stated we would make adjustments to the histori cal results ‘ if there have been anomalous, demonstrable, and highly significant changes in the industry structure. ’ 5 Data for the year ended June 30, 2010.- 3

-

lane [i.e., class rate], the Department ought to consider all move ment and all associated data [such as PenAir’s] in determining mail rates.”

However, the facts are different from those that applied when we issued Order 2011

- 10

- 3

, the currently effective rate . At that time

, we could see no basis for excluding PenAir’s data

– the data were reliable

, PenAir had operated during the entire base period, and it continued operat ing as a Bush Part 135 passenger carrier through the issue date of th at Order . We included PenAir’s data even though we recognized that its operations did not fit well with those of the other carriers in its class. 6 Now that PenAir is no longer operating, we are no longer under any obligation to include its data. 7

Finally, while we agree with the Postal Service’s goal

, cited above

, of establishing fair and adequate compensation for the transportation of mail in Alaska, we disagree that our shared goal would be met by including PenAir’s data. PenAir’s data w ere anomalous two years ago and they are anomalous now. I t is clear that ad ding that data w ould worsen the match between the prospective rate we are setting here and the actual expenses the carriers will experience until our next update

.
ACCORDINGLY,

1. W e make final our conclusions in Order 2013

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- 5 ;

2. We delegate to the Dir ector, Office of Aviation Analysis, the authority to determine the final rates contemplated in ordering paragraph one, to be based on the annual terminal and

non

- fuel linehaul rates, adjusted for the most recent quarterly fuel expenses;

3. Th is docket sha ll remain open until further order of the Department; and

6 Order 2011

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- 3 dealt with the problem of PenAir’s an o m a lous data by introducing a mileage taper, which restructured the linehaul compensation for all of the Part 135 carriers. 7 No precedent requires us to include in the calculation of a prospective rate the data of a carrier no longer operating in a particul ar rate class, especially when those data are anomalous and would distort prospective mail rates. (See Order 20 07

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- 17).- 4

-

4. We will serve this order upon all parties on the Service List for th ese Docket s

.
By:

Susan Kurland Assistant Secretary for Aviation and International Affairs (SEAL)

An electronic version of this document is available on the World Wide Web at http://www.regulations.gov