[Federal Register Volume 74, Number 111 (Thursday, June 11, 2009)]
[Notices]
[Pages 27845-27851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13641]


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POSTAL REGULATORY COMMISSION

[Docket No. R2009-3; Order No. 219]


Special Summer Postal Rate Program

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Postal Service has prepared, and the Commission has 
approved, a special program offering reduced rates for Standard mailers 
this summer. This document addresses related issues and provides 
pertinent details.

DATES: Effective June 11, 2009.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6820 and <a href="/cdn-cgi/l/email-protection#dfacabbaafb7bab1f1acb7beadb9b2beb19fafadbcf1b8b0a9"><span class="__cf_email__" data-cfemail="493a3d2c39212c27673a21283b2f24282709393b2a672e263f">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On May 1, 2009, the Postal Service filed with the Commission a 
notice announcing its intention to adjust prices for Standard Mail 
letters and flats pursuant to 39 U.S.C. 3622 and 39 CFR part 3010.\1\ 
The proposed adjustment is in the form of a ``Standard Mail Volume 
Incentive Pricing Program'' (Summer Sale program) with a planned 
implementation date of July 1, 2009 and a planned expiration date of 
September 30, 2009. The Summer Sale program represents a reasoned 
approach by the Postal Service to exercise its flexibility in market 
dominant pricing under the Postal Accountability and Enhancement Act 
(PAEA), Public Law 109-435, 120 Stat. 3218 (2006).
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    \1\ United States Postal Service Notice of Market-Dominant Price 
Adjustment, May 1, 2009 (Notice).
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    In Order No. 209, the Commission established Docket No. R2009-3 to 
consider matters raised by the Postal Service's filing, appoint public 
representatives, and afford interested persons an opportunity to 
comment.\2\ By this order, the Commission approves the proposed 
Standard Mail Volume Incentive Pricing Program.
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    \2\ PRC Order No. 209, Notice and Order Concerning Standard Mail 
Volume Incentive Pricing Program, May 4, 2009; located at 74 FR 
21837 (May 11, 2009).
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    The Commission finds the proposal to be a judicious exercise of the 
Postal Service's pricing flexibility under the PAEA. The Postal Service 
is to be commended for its response to current market conditions. Much 
can be learned from what, in essence, is a short-term pricing 
experiment. However, the program is not without risks. Thus, 
development and use of appropriate metrics in evaluating the program 
are critical in determining whether the program is successful, and also 
for assessing the long-term implications of such an approach.

II. Standard Mail Volume Incentive Pricing Program

A. Postal Service Filing

    The Postal Service notes that the Summer Sale program is necessary 
to counteract the dramatic volume reduction due to the economy, support 
a struggling mailing industry, and increase volume during a typically 
low volume period in which there is excess capacity; and secondarily to 
improve customer relations, to fine tune future programs, to gather 
feedback from customers, and to gather data which may improve postal 
data systems. Notice at 2-3. The Postal Service's Notice provides a 
high level overview of the Summer Sale program, identifying its salient 
features as follows.\3\
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    \3\ Much of the justification for the proposal was submitted in 
response to Chairman's Information Request No. 1, May 8, 2009 (CHIR 
No. 1). Any such future proposals must be accompanied by the 
requisite financial (cost, revenue, and volume) data underlying 
them.
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    Under the proposed Summer Sale program, eligible mailers will 
receive a 30 percent rebate of postage paid on the volume of Standard 
Mail letters and flats mailed from July 1, 2009 to September 30, 2009 
that exceeds mailer-specific thresholds.\4\ The rebate may be reduced 
for volumes shifted from October 2009 into the sales period.\5\ Notice 
at 3-4.
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    \4\ The threshold is calculated by comparing average volumes 
over distinct periods to determine a trend in the mailer's volume. 
That trend is applied to the average expected mail volume over the 
Summer Sale program months, and any volume above the trend adjusted 
average is eligible for the discount.
    \5\ To quantify this possibility, the Postal Service will 
measure each mailer's October 2009 volumes using a trend analysis 
based on the mailer's prior years' volumes for that month. Id. at 4.
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    Eligibility for the Summer Sale program is limited to mailers who 
are permit holders who have a demonstrable volume of at least 1 million 
Standard Mail letters and flats between October 1, 2007 and March 31, 
2008 for one or more permit imprint advance deposit accounts, pre-
canceled stamp permits, or postage meter permits. Id. at 4.
    Mail service providers are excluded from the program to help ensure 
that the Summer Sale program generates new volumes, rather than shifts 
existing volumes. However, individual mailers who meet the above 
criteria but use a mail service provider may participate if they meet 
certain conditions. Id. at 4-5.

B. Chairman's Information Request No. 1 (CHIR No. 1)

    CHIR No. 1 was designed to clarify the Postal Service's proposal. 
The responses substantially expand on the Postal Service initial filing 
and provide essential details regarding the scope of the program and 
its underlying basis. CHIR No. 1 sought information on metrics to 
measure the success of the Summer Sale program, including complete cost 
analyses and volume migration from other classes or time periods, the 
definition of short-run excess capacity, eligibility for the program, 
contribution level for Standard Mail flats, and documentation of cost 
and revenue estimates. See CHIR No. 1. The Commission expects the 
Postal Service to provide this level of detail in future initial 
filings.
    The Postal Service defines the primary measure of success for the 
Summer Sale program as ``incremental revenue and volume growth over the 
threshold for the universe of eligible participants[.]'' See Response 
of the United States Postal Service to Chairman's Information Request 
No. 1, May 15, 2009, at 2 (Response to CHIR No. 1).\6\ The Postal 
Service also anticipates monitoring customer feedback and the efficacy 
and efficiency of its administration of the program. Id.
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    \6\ The pages to the Postal Service's response to CHIR No. 1 are 
not numbered. For the convenience of the parties, the Commission has 
numbered the pages for purposes of citation. If the normal citation 
practice was followed (citing just the relevant question being 
answered), parties may have difficulty in finding the specific 
reference as some of the responses are lengthy.
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    The Postal Service does not believe the additional incentive of the 
Summer Sale program will induce any First-Class advertising mail to 
migrate to the program, due to different demand characteristics and the 
significant gap in price which already exists. Id. at 4. Further, the 
Postal Service does not believe that mailers have enough lead time to 
shift volume from June or earlier into the program. Id. In addition, 
the Postal Service cites precautions it has

[[Page 27846]]

taken, including mailer certification of volumes, to mitigate any 
attempt by mailers to shift volume among permits. Id. at 4-5.
    The Postal Service's initial Notice references excess capacity only 
as it relates to delivery. Notice at 3. It makes no attempt to define 
or otherwise elaborate on the concept. In response to CHIR No. 1, the 
Postal Service indicates that excess capacity exists when ``capacity to 
handle volume is larger than the volume presented to it.'' Response to 
CHIR No. 1 at 6. It also discusses the secular, cyclical, and seasonal 
effects on mail volumes that, in turn, affect capacity. Id.\7\
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    \7\ The Postal Service states that secular volume changes 
reflect long-run trends and are considered permanent, whereas 
cyclical variations are caused by general economic conditions and 
are temporary. Seasonal volume fluctuations occur throughout the 
year and reflect seasonal variations in mailing patterns. Id.
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    To support its claim of excess capacity, the Postal Service appears 
to rely principally on a cyclical decline in volume due to the general 
economic conditions and seasonal variation associated with the fourth 
quarter. Id. at 6-8, 12. The Postal Service claims it is difficult, if 
not impossible, for it to reduce capacity at the same rate as volume 
has fallen when comparing year over year declines. Id. at 12-15. In 
addition, the Postal Service indicates that its inability to rapidly 
adjust work hours and building capacity contributes to seasonal excess 
capacity. Id. at 7-9.
    The Postal Service asserts that short-run attributable costs for 
incremental pieces, during a period of excess capacity, are lower than 
the long-run attributable costs. See id. at 16-17. The Postal Service 
provides estimates of the attributable costs by product by breaking out 
each of the cost segments and examining where volume can be absorbed 
without incurring additional incremental cost. Id. at 17-24. As a 
result of this analysis, the Postal Service estimates that cost 
coverage for the incremental volume in each product included in the 
Summer Sale program will exceed 100 percent. Id. at 26.
    The Postal Service identifies the administrative costs of the 
Summer Sale program as $977 thousand. Id. at 32. The Postal Service 
estimates that it may require up to six full-time employees for four 
months at $300 thousand, up to 10 part-time employees for four months 
at $250 thousand, and up to four contract analysts for up to four 
months at $400 thousand. Id. The Postal Service assigns $7 thousand to 
Web site development and $20 thousand to production of invitation 
letters to eligible customers. Id.
    The Postal Service justifies the eligibility threshold principally 
on the grounds that the administrative costs (approximately $20 
million) of including Standard Mail customers who mailed less than 1 
million pieces during the relevant period would exceed the net revenues 
(approximately $17.2 million) attributed to such sales. Id. at 27-28. 
In addition, it estimates that the average small business would only 
save 42 dollars, which probably would not be worth the business's time 
and trouble. Id. at 28-29.
    The Postal Service reiterates that the rationale for not including 
mail service providers (MSP) in the Summer Sale program is to protect 
it from MSPs shifting volumes to optimize the discount. Id. at 29. The 
Postal Service indicates that First-Class advertising mail was not 
considered for the program since it could not reasonably segregate 
First-Class advertising mail from other First-Class Mail. Id.
    Finally, the Postal Service also believes including Standard Mail 
flats in the Summer Sale program, despite its low cost coverage, is 
justified since the program may help offset challenges to postal 
customers hit hardest by the challenging economic climate, and because 
the incremental volume will cover its costs. Id. at 30.

C. Chairman's Information Request No. 2 (CHIR No. 2)

    CHIR No. 2 \8\ was designed to gather information on the Postal 
Service's initial estimates for the program, and to assist the 
Commission in determining measurement of the success of the program 
compared to those estimates. CHIR No. 2 was also designed to bring to 
light the Postal Service methodology for determining the volumes, 
revenues, and costs caused by the Summer Sale program, so that such 
measurements are straightforward at the completion of the program.
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    \8\ Chairman's Information Request No. 2, May 27, 2009.
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    The Postal Service states that it developed the incremental volume 
estimates for the Summer Sale program by taking into account the demand 
models provided to the Commission on January 20, 2009, consulting 
Postal Service managers and executives, and corresponding with mailers. 
See Response of United States Postal Service to Chairman's Information 
Request No. 2, June 2, 2009, at Q.1 (Response to CHIR No. 2). The 
Postal Service states that it did not derive separate volume estimates 
for each Standard Mail product. Id.
    The Postal Service plans to measure incremental volumes caused by 
the Summer Sale program based on the same trend calculations used to 
establish mailer threshold for program eligibility. Id. at Q.2. The 
Postal Service plans to measure actual short-run attributable costs 
resulting from the Summer Sale program volume by applying the same 
method it used to estimate those costs in response to CHIR No. 1. Id. 
To ensure the application of those costs is appropriate, the Postal 
Service will revisit the assumptions it made regarding excess capacity 
in its response to CHIR No. 1. Id.

III. Comments

    The Postal Service's proposal has generated significant interest 
and support from the mailing community. The Commission received 23 
formal comments: 20 support the Summer Sale program,\9\ 2 request 
inclusion in it,\10\ while 1 does not oppose it.\11\ The Summer Sale 
program enjoys broad support and the majority of the commenters, citing 
the recession and its effect on the Postal Service and mailers, urge 
the Commission to approve it expeditiously. See, e.g., MOAA Comments, 
BOA Comments, Pitney Bowes Comments, PostCom Comments, PSA Comments, 
Quad/Graphics

[[Page 27847]]

Comments, DMA Comments, and ACMA Comments.
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    \9\ Comments of Mail Order Association of America to Postal 
Regulatory Commission Notice and Order Concerning Standard Mail 
Volume Incentive Pricing Program, May 12, 2009 (MOAA Comments); 
Comments of the Association for Postal Commerce in Response to Order 
No. 209 Concerning Standard Mail Volume Incentive Pricing Program, 
May 19, 2009 (PostCom Comments); Comments of Parcel Shippers 
Association to Postal Regulatory Commission Notice and Order 
Concerning Standard Mail Volume Incentive Pricing Program (PSA 
Comments); Comments of the American Catalog Mailers Association on 
the Standard Mail Volume Incentive Program (Summer Sale) (ACMA 
Comments); Comments of Quad/Graphics, Inc. in Response to Order No. 
209 (Quad/Graphics Comments); Comments of Bank of America 
Corporation on the United States Postal Service Proposal for a 
Summer Sale Program (BOA Comments); Comments of Pitney Bowes Inc. on 
the United States Postal Service Proposal for a Summer Sale Program 
(Pitney Bowes Comments); Comments of the Direct Marketing 
Association on the United States Postal Service ``Summer Sale'' (DMA 
Comments); Valpak Direct Marketing Systems, Inc. and Valpak Dealers' 
Association, Inc. Comments Regarding Standard Mail Volume Incentive 
Pricing Program (Valpak Comments); and Comments of the Public 
Representatives (Public Representatives Comments); all filed on May 
21, 2009; Comments of Discover Financial Services, May 22, 2009 (DFS 
Comments); and Comments of 7R Communications, June 2, 2009 (7R 
Comments).
    \10\ Comments of National Automotive Marketing, May 19, 2009; 
Comments of Planner Pads Co., May 21, 2009.
    \11\ Comments of National Newspaper Association on Volume 
Incentive Program Known as the ``Summer Sale'', May 21, 2009 (NNA 
Comments).
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    While the majority of the commenters endorse the program without 
reservation, a few express concerns regarding the scope of the program 
and measurement of it. See, e.g., Valpak Comments regarding measurement 
of the program success; see also NNA Comments regarding scope of the 
program. Specific comments are addressed below in section IV, 
Commission Analysis.
    In addition, the Commission's Office of Public Affairs and 
Government Relations received nearly 300 letters, expressing nearly 
unanimous support for the program, and urging the Commission to approve 
it.\12\ Several letters suggested that the Postal Service should lower 
the participation threshold.
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    \12\ These letters are maintained in the Commission's 
``Commenter File'' for Docket No. R2009-3. The file includes 
letters, e-mails, and faxes sent to the Commission, but not filed in 
the docket or stylized as comments. It is available for inspection 
at the Commission's Public Reading Room during normal business 
hours.
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    Short-run marginal cost pricing. Valpak comments that the Postal 
Service's use of short-run marginal cost to justify pricing in the 
Summer Sale program raises methodological issues. Valpak Comments at 4. 
As such, Valpak suggests a proceeding, apart from the Commission's 
review of the Summer Sale program, which gives interested persons an 
opportunity to address those methodological issues. Id.
    In its response to CHIR No. 1, the Postal Service cites secular, 
cyclical, and seasonal effects on mail volume to support its conclusion 
of excess capacity and to justify its use of short-run marginal cost 
pricing. In reviewing the Postal Service's claims of excess capacity, 
the Commission, for purposes of the Summer Sale program, relies on 
secular and cyclical effects on mail volume to support its 
conclusions.\13\ The principal cause of the sharp volume reductions is 
the current serious economic recession, a cyclical occurrence. Thus, 
under the circumstances, the Postal Service's proposal represents a 
reasonable attempt to maintain volume-related efficiencies.\14\
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    \13\ While the secular effects do not appear to be applicable to 
Standard Mail, there is, nonetheless an effect on capacity.
    \14\ Seasonal effects on mail volume, though evident, are not 
unique to this year. This opinion does not evaluate whether a 
recurring seasonal effect may justify short-run marginal cost 
pricing. The Commission is sensitive to the combined effect of 
seasonal effects, with secular and cyclical effects, on the Postal 
Service's ability to shed capacity (and thus costs) to keep up with 
falling volume.
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    The Commission agrees that the Postal Service's use of short-run 
marginal cost to justify a change in price raises methodological issues 
which may impact future pricing incentive programs and the Commission's 
Annual Compliance Determination. The methodological change has broad 
implications which warrant examination. This, however, is not the forum 
for that examination. The Summer Sale program is unique on several 
levels and can, for purposes of this proceeding, be addressed on the 
merits. After this program has been completed and its results analyzed, 
the Commission may better evaluate whether to initiate a proceeding to 
consider the methodological issues surrounding short-run marginal cost 
pricing.

IV. Commission Analysis

    Faced with unprecedented historic volume and revenue declines, the 
Postal Service has put forth an integrated proposal designed to stem 
that trend and assist the mailing industry. See Notice at 2-8. 
Illustrative of the current challenges faced by the Postal Service, 
recently released data show a net loss for April of 2009 of $381 
million, with a year-to-date loss of $2.7 billion.\15\ Total volume 
decreased 14.8 percent over Same Period Last Year (SPLY), with Standard 
Mail down 17.8 percent. Total year-to-date volume has declined about 
15.2 billion pieces or 12.3 percent. Id. Total revenues for the month 
are down 11.9 percent and year-to-date revenues are about $41.7 
billion, or 8.8 percent less than SPLY. Id.
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    \15\ See USPS Preliminary Financial Information (Unaudited), May 
27, 2009.
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    Impact on the price cap. The Postal Service proposes to treat the 
Summer Sale program, for purposes of its effect on the price cap, as if 
all the discounted incremental volume paid the applicable full postage. 
Notice at 8. This is analogous to the way Negotiated Service Agreement 
(NSA) volume is treated for purposes of the price cap. Id. The 
proposal, therefore, does not result in a net price decrease, which 
could be banked and applied to all mailers as a future rate increase, 
including those which could not participate in the Summer Sale program. 
Id.
    DMA suggests that the Postal Service's proposal to treat 
incremental Summer Sale program volume as if it paid the full rate is 
justified, as it protects mailers who do not participate in the sale 
from future rate increases based on an increased banked amount in the 
cap. DMA Comments at 2-3. Valpak comments that since the Postal Service 
proposes to treat the program as an NSA, for purposes of the price cap, 
its results should be comprehensively evaluated in a similar fashion. 
Valpak Comments at 2-3. The Public Representatives do not oppose the 
Postal Service's proposal to treat the program as analogous to an NSA 
for purposes of calculating the price cap. Public Representatives 
Comments at 10.
    The Postal Service's treatment of the Summer Sale program as an NSA 
for purposes of the price cap is reasonable. It shields mailers not 
eligible for the program from being charged higher rates based on the 
amount which otherwise would be banked from the program.
    Objectives and factors, workshare discounts, and preferred rates. 
Pursuant to the Commission's rules, 39 CFR 3010.14(b)(7), the Postal 
Service addresses how the Summer Sale program helps achieve the 
objectives of 39 U.S.C. 3622(b) and takes into account the factors of 
39 U.S.C. 3622(c). See Notice at 8-13. It asserts that the Summer Sale 
program does not substantially alter the degree to which Standard Mail 
prices address the objectives and factors, but further satisfies the 
objectives of pricing flexibility and financial stability. Id. at 8-9. 
The Postal Service also believes the ``program is a prime example of 
how the Postal Service can utilize the pricing flexibility provided 
under the PAEA in order to encourage increased mail volume[.]'' Id. at 
12. It projects the program will not hinder Standard Mail's ability to 
cover cost and will help to alleviate the burden that the current 
economic conditions have placed on some mailers. Id. The Postal Service 
also claims that workshare discounts will remain in compliance, and the 
fixed discount ensures that the proper ratio for preferred rates 
remains unchanged. Id. at 13.
    The Public Representatives do not dispute any of the Postal 
Service's claims that the Summer Sale program satisfies the objectives 
and factors, workshare discount requirements, and preferred rate 
requirements. See Public Representatives Comments at 10-12. The Public 
Representatives express concern regarding the cost coverage for 
Standard Mail flats. Id. at 11. However, upon review of the Response to 
CHIR No. 1, the Public Representatives conclude that the Postal Service 
has made an adequate demonstration that the factor requiring 
attributable cost coverage for each class of mail is satisfied. Id.
    The Commission finds that the objectives and factors in 39 U.S.C. 
3622 appear to be satisfied by explanations

[[Page 27848]]

and data in the Notice and Response to CHIR No. 1.
    39 U.S.C. 3622(e) requires that workshare discounts given by the 
Postal Service do not exceed their avoided costs unless certain 
criteria are fulfilled. The Postal Service claims that workshare 
discounts will be made smaller by virtue of the 30 percent discount; 
and, therefore, the Summer Sale program moves those discounts which are 
out of compliance closer to compliance. See Notice at 13.
    The Commission finds that given the expected mail mix, relatively 
small net impact of the volume induced by the Summer Sale program, and 
that the rebate applies at all workshare discount tiers, the program's 
effect on workshare discounts evaluated in Docket No. R2009-2 will be 
limited.
    39 U.S.C. 3626 requires that nonprofit categories of products shall 
be set to yield 60 percent of the per-piece revenue of their commercial 
counterparts. The Postal Service expects that, given the Summer Sale 
program's flat 30 percent discount on incremental mail volume across 
nonprofit and commercial subclasses alike, the required 60 percent 
differential will be maintained. Id. Based on the Postal Service's 
estimate of the mail mix of the incremental volume, the Commission 
agrees that the required 60 percent differential will be maintained.
    Eligibility threshold. The volume threshold for eligibility in the 
program raises two principal concerns: first, whether it is reasonable, 
and second whether it can be manipulated, e.g., for mailers to earn 
discounts on mail that would have been sent without the discount.
    Several commenter letters to the Commission request that the Postal 
Service include lower volume mailers in the Summer Sale program. NNA 
also comments that the Summer Sale program ``offers little to smaller 
mailers, with the possible exception of the system-wide benefits if a 
short-term infusion of revenues reaches USPS coffers[.]'' NNA Comments 
at 3.
    The Commission is sensitive to the mailers who wish to participate 
but do not meet the volume minimums set out by the Postal Service for 
participation in the Summer Sale program. On review however, 
recognizing this is a first effort to test a ``sale'' price, the Postal 
Service has provided a reasonable rationale for the threshold. Issues 
arising from Postal Service calculation of usage by mailers, and 
whether adequate communication took place with appropriate mailer 
executives, also can be better resolved in future programs should they 
be developed.
    The Postal Service provides calculations which demonstrate that, if 
the average expected incremental volume increase held for mailers of 
generally lower volume, the incremental volume generated would cover 
its short-run variable costs. However, such mail would not produce 
enough revenue to cover the increased administrative costs of the 
broadened program. See Response to CHIR No. 1 at 27-28. The Commission 
accepts the Postal Service's analysis that opening the program to all 
Standard Mail customers would create administrative costs which 
outstrip the net incremental revenue the program would generate. Also, 
the relatively small probable impact and limited, experimental nature 
of the program suggest that small mailers would neither significantly 
benefit from nor be disadvantaged by the program.
    The Postal Service recognizes the possibility that the threshold 
may be effectively manipulated and has taken steps to guard against 
this happening. Because some participants may use MSPs for a portion of 
their mailings, the Commission is concerned about the possibility for 
discounts to be awarded for mail shifted from MSP permits to mailer 
owned permits, which would not be incremental volume. The Postal 
Service responds to these concerns by explaining that participants will 
be required to certify to the best of their knowledge that their 
threshold is based on an accurate representation of all Standard Mail 
sent by the mailer. See id. at 4-5.
    In Response to CHIR No. 1, the Postal Service attached guidelines 
for mailers seeking to document their MSP volumes for participation in 
the Summer Sale program. The guidelines state that ``[t]here are two 
situations though that leave the Postal Service blind to a mailer's 
mailing history. The first is when no ghost permit is assigned to a 
mailing sent on an MSP permit. The second is when a mailer's mailing is 
part of a co-mail program run through an MSP permit.'' See id. at 
Attachment B.\16\ The Commission expects that the Postal Service will 
develop and implement appropriate revenue protection mechanisms to 
verify that participants do not exploit these blind spots and receive 
discounts for non-incremental volume.
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    \16\ Business Mail Entry Unit clerks create ghost permit numbers 
to identify mail owners when no permit number is associated with 
mail owners' names in PostalOne! See http://www.uspsoig.gov/FOIA_files/MS-MA-06-002.pdf at 1-2.
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    Data collection and program evaluation. Valpak comments that a plan 
for evaluation, ``including criteria against which success (or failure) 
will be assessed'' should be established immediately. Valpak Comments 
at 3. Valpak asserts that public availability of the plan and 
subsequent results are required under the PAEA for transparency and 
accountability. Id. Such transparency would foster understanding and 
help identify and avoid possible problems with any other similar 
program in the future. Id. Pitney Bowes notes the Postal Service's 
efforts to ensure qualifying volume in the program is actually new 
incremental volume rather than a result of volume shifting. Pitney 
Bowes Comments at 4.
    Similarly, the Public Representatives express concern about the 
possibility of volume migration from First-Class advertising mail to 
Standard Mail as a result of the program, accuracy of the cost coverage 
projections, and volume migration from the months prior to the program. 
Public Representatives Comments at 13. The Public Representatives call 
for the Postal Service to issue a report on these issues at the 
conclusion of the program. Id. NNA comments that the Summer Sale 
program does not guard against the possibility of volume shifting from 
November and December into the sale period. NNA Comments at 3.
    The Commission expects the Summer Sale program to yield data which 
will prove useful in assessing the merits of other pricing incentive 
programs. The Public Representatives' and Valpak's comments are well 
taken that evaluation criteria and a plan for data collection must be 
established prior to the implementation of the program. The Commission 
shall require data reporting from the Postal Service within 15 days 
after the Postal Service credits the rebates due to the Summer Sale 
program's participants.
    In considering the data needed to evaluate the Summer Sale program 
fully, the Commission concludes that the following information is 
required. First, for each eligible Standard Mail user,\17\ the Postal 
Service shall provide monthly volumes and revenues for all Standard 
Mail letters by product and flats by product, further broken out into 
commercial and nonprofit categories. The reporting period shall be from 
October of 2006 through October of 2009. The Postal Service shall also 
provide information on any rebate paid to each eligible user, with 
supporting calculations. The information provided pursuant to this 
paragraph shall be filed under seal, and the Postal Service may mask 
mailer identities by using a

[[Page 27849]]

generic identification number. See Appendix A.
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    \17\ Eligible Standard Mail users meeting the qualifying 
conditions established for the Summer Sale program. See Notice at 4.
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    Second, the Postal Service shall publicly provide the monthly 
information requested in the preceding paragraph, but aggregating 
mailer data.
    Third, for each eligible Standard Mail user, the Postal Service 
shall provide monthly permit volumes for First-Class presort letters, 
cards, and flats.\18\ The information provided pursuant to this 
paragraph shall be filed under seal, and the Postal Service shall, if 
it masks mailer identities, use the same generic identification number 
used to report Standard Mail data.
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    \18\ The Postal Service has not collected First-Class Mail 
permit data from the eligible mailers, but once such data are 
obtained, it can be used to evaluate the effect on First-Class Mail 
volumes due to the program. Given the finite universe of eligible 
mailers and the speed with which the Postal Service gathered 
Standard Mail permit volume information, the Commission does not 
expect the collection of First-Class Mail volumes for the same 
mailers to burden the Postal Service.
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    Fourth, the Postal Service shall identify the actual short-run 
volume-variable cost by each Standard Mail letter and flat product. See 
Response to CHIR No. 1 at 18-24.
    Fifth, the Postal Service shall identify the actual administrative 
costs of the program. See id. at 32.
    The data requested should provide the Commission and public an 
opportunity to evaluate thoroughly the program's impact on Postal 
Service volumes, revenues, and costs. This information is likely to be 
instrumental in the design of future Postal Service programs of a 
similar nature.
    Conclusion. The Postal Service proposes to implement a novel 
program, broadly supported by the mailing industry and commenters in 
this proceeding. The Commission is hopeful the program may offer one 
solution to cyclical and secular volume declines, and provide 
information useful for considering other potential pricing incentives. 
The Commission believes the reporting required by this order is an 
essential feature of the program. Without such metrics, the merits of 
the program cannot be fairly evaluated.
    The Commission has reviewed the threshold volume, average revenue 
per piece, short-run attributable cost data submitted by the Postal 
Service, and conducted its own preliminary analysis using such data. 
The Postal Service estimates the volume response from the program as 
2.0 to 5.15 percent over threshold levels. Based on these assumptions 
and other submitted data, the Commission estimates positive 
contribution for both the upper and lower bound volume figures. 
Separately, based on an analysis using demand elasticities from the 
latest set of Postal Service demand models and incorporating a First-
Class Mail presort demand shift, the Commission finds a much lower, but 
still positive contribution. See PRC-LR-1 (Library Reference 1 to be 
filed with this order). Thus, based on these scenarios, the Commission 
concludes that a positive contribution from the program is likely. The 
Commission notes, however, that results are sensitive to the degree to 
which First-Class Mail migrates to Standard Mail, an aspect of the 
program that must be carefully evaluated in assessing its merits.

V. Ordering Paragraphs

    A full review of the United States Postal Service Notice of Market-
Dominant Price Adjustment, filed May 1, 2009, has been completed. With 
regard to the price adjustments contained therein, for the reasons set 
forth above, it is ordered:
    1. The Commission approves the Standard Mail Volume Incentive 
Pricing Program.
    2. The Commission directs the Postal Service to report on the 
Standard Mail Volume Incentive Pricing Program within 15 days after the 
Postal Service credits the rebates due to the Summer Sale program's 
participants as consistent with this order.
    3. The Motion of Discover Financial Services for Late Acceptance of 
Comments, filed May 22, 2009, and the Motion of 7R Communications, LLC 
for Late Acceptance of Comments, filed June 2, 2009, are granted.
    4. The Secretary of the Commission will arrange for publication of 
this order in the Federal Register.

    By the Commission.
Steven W. Williams,
Secretary.

Appendix A

Summer Sale Data Collection Plan and Rebate Calculation Information

    This appendix contains an outline of the Summer Sale Data Report 
contents as specified in Order No. 219. The template is presented to 
help clarify the disaggregation by product, commercial or nonprofit 
status, and time period as described in the order.
    The specific format of the report may be tailored to fit the 
presentation format of the data generation programs of the Postal 
Service, but should be in a broadly available electronic format such 
as Microsoft Excel.
    Workbook 1: Mailer Information contains the disaggregated Volume 
and Revenue information to be reported for each mailer eligible for 
the summer sale. This tab, and the summer sale rebate calculations 
contained therein, should be replicated for each eligible mailer.
    Workbook 2: Aggregate Information contains the Volume and 
Revenue categories as they appear in tab 1. The Summer Sale 
Aggregate Incremental Volume and Aggregate Rebate should be a 
summation calculation linked to each mailer information tab so that 
each volume and revenue figure represents the total for all eligible 
mailers for the relevant month.

                     Workbook 1--Mailer Information
------------------------------------------------------------------------
                                   Month (for each month) October 2006
  Mailer-specific information            through October 2009 \1\
------------------------------------------------------------------------
Volume.........................
    Commercial.................
    Letters....................
    Flats......................
    Carrier Route Letters......
    Carrier Route Flats........
    High Density and Saturation
     Letters.
    High Density and Saturation
     Flats.
    First-Class Presort Letters
     and Cards.
    First-Class Flats..........
    Nonprofit..................
    Letters....................
    Flats......................
    Carrier Route Letters......

[[Page 27850]]

 
    Carrier Route Flats........
    High Density and Saturation
     Letters.
    High Density and Saturation
     Flats.
Revenue........................
    Commercial.................
    Letters....................
    Flats......................
    Carrier Route Letters......
    Carrier Route Flats........
    High Density and Saturation
     Letters.
    High Density and Saturation
     Flats.
    First-Class Presort Letters
     and Cards.
    First-Class Flats..........
    Nonprofit..................
    Letters....................
    Flats......................
    Carrier Route Letters......
    Carrier Route Flats........
    High Density and Saturation
     Letters.
    High Density and Saturation
     Flats.
------------------------------------------------------------------------


 
   Rebate Calculation for each mailer         Formula       Calculation
------------------------------------------------------------------------
Threshold...............................
Incremental Volume......................
October 2009 Adjustment.................
Eligible Volume.........................
Average Revenue Per Piece...............
Rebate..................................
------------------------------------------------------------------------
\1\ Formulas used in the determination of Volume Threshold, Incremental
  Volume, October 2009 Adjustment, Average Revenue per Piece, and Summer
  Sale Rebate should be shown on each mailer page. Only mailer input
  data should be hardcoded.


                    Workbook 2--Aggregate Information
------------------------------------------------------------------------
                                   Month (for each month)  October 2006
  Eligible mailer information           through  October 2009 \1\
------------------------------------------------------------------------
Volume.........................
    Commercial.................
    Letters....................
    Flats......................
    Carrier Route Letters......
    Carrier Route Flats........
    High Density and Saturation
     Letters.
    High Density and Saturation
     Flats.
    First-Class Presort Letters
     and Cards.
    First-Class Flats..........
    Nonprofit..................
    Letters....................
    Flats......................
    Carrier Route Letters......
    Carrier Route Flats........
    High Density and Saturation
     Letters.
    High Density and Saturation
     Flats.
Revenue........................
    Commercial.................
    Letters....................
    Flats......................
    Carrier Route Letters......
    Carrier Route Flats........
    High Density and Saturation
     Letters.
    High Density and Saturation
     Flats.
    First-Class Presort Letters
     and Cards.
    First-Class Flats..........
    Nonprofit..................
    Letters....................
    Flats......................
    Carrier Route Letters......
    Carrier Route Flats........

[[Page 27851]]

 
    High Density and Saturation
     Letters.
    High Density and Saturation
     Flats.
------------------------------------------------------------------------


 
   Rebate Calculation for each mailer         Formula       Calculation
------------------------------------------------------------------------
Incremental Volume......................
Rebate..................................
------------------------------------------------------------------------
\1\ Formulas used in the determination of Volume Threshold, Incremental
  Volume, October 2009 Adjustment, Average Revenue per Piece, and Summer
  Sale Rebate should be shown on each mailer page. Only mailer input
  data should be hardcoded.
 

[FR Doc. E9-13641 Filed 6-10-09; 8:45 am]
BILLING CODE 7710-FW-P


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