Order 2013-7-25

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 31st of July, 2013

INTRA ALASKA BUSH MAIL RATES

 

 Under 49 U.S.C § 41901 et seq

Docket OST-2003-14694

ORDER FINALIZING SHOW CAUSE ORDER

Summary

By this Order, the Department makes final the rates tentatively set by Order 2013-6-5, June 6, 

2013, until on or about April 1, 2014.

Background

Order 2013-6-5 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, the 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 2013-6-5 tentatively found that, as a statutory matter, the Part 135 rate must exclude 

the data of carriers that are not Bush Part 135 Passenger Carriers. Beginning in 

January 2013, PenAir no longer operated as a Bush Part 135 passenger carrier. However, 

the Order found that that fact was insufficient, by itself, to exclude PenAir’s data, because 

PenAir had operated as a Bush Part 135 Passenger Carrier during the entire base period at 

issue, October 1, 2011, through September 30, 2012. As Order 2013-6-5 stated: 
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“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 aim is to set a mail rate that reflects the costs of 

transporting the mail in the prospective period. Second, as we recognized in 

Order 2011-6-14, adding PenAir’s Metro costs to the Part 135 class rate produced 

a very significant change in the level of that 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-haul, 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 prospective rate.”

Decision

The Postal Service argued and Order 2011-6-14 agreed that we should include PenAir’s 

data5 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 operated during some or all of the base period 

but whose operations 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 2007-6-17 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 aircraft 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 2008-12-28, which stated we would make adjustments to the historical results ‘if there have 

been anomalous, demonstrable, and highly significant changes in the industry structure.’

5 Data for the year ended June 30, 2010.
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lane [i.e., class rate], the Department ought to consider all movement 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 operating as a Bush Part 135 passenger carrier through the issue date of that

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 were anomalous two 

years ago and they are anomalous now. It is clear that adding that data would 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. We make final our conclusions in Order 2013-6-5;

2. We delegate to the Director, 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. This docket shall remain open until further order of the Department; and

 

6 Order 2011-10-3 dealt with the problem of PenAir’s anomalous 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 particular rate class, especially when those data are anomalous and would distort prospective 

mail rates. (See Order 2007-6-17).
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4. We will serve this order upon all parties on the Service List for these Dockets.

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