United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 5, 2018 Decided April 6, 2018

No. 16-1284

UNITED STATES POSTAL SERVICE,

PETITIONER

v.

POSTAL REGULATORY COMMISSION,

RESPONDENT

NATIONAL POSTAL POLICY COUNCIL, ET AL.,

INTERVENORS

On Petition for Review of Orders

of the Postal Regulatory Commission

David C. Belt, Attorney, U.S. Postal Service, argued the 

cause and filed the briefs for petitioner. Stephan J. Boardman, 

Chief Counsel, U.S. Postal Service, entered an appearance.

Dana Kaersvang, Attorney, U.S. Department of Justice, 

argued the cause for respondent. With her on the brief were 

Michael S. Raab, Attorney, David A. Trissell, General Counsel, 

Postal Regulatory Commission, Christopher J. Laver, and 

Erica A. Barker, Attorneys.

Before: PILLARD, Circuit Judge, and EDWARDS and 

WILLIAMS, Senior Circuit Judges.
2

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS.

WILLIAMS, Senior Circuit Judge: Under the Postal 

Accountability and Enhancement Act, Pub. L. No. 109–435, 

120 Stat. 3198 (2006), the Postal Regulatory Commission is 

authorized to set rate caps for the “market-dominant products” 

of the United States Postal Service. (The act contrasts such 

products, consisting most obviously of products where the 

Postal Service enjoys a legal monopoly, such as first-class mail, 

with the Postal Service’s “competitive” products.) The 

Commission is to set “an annual limitation on the percentage 

changes in rates” equal to the rate of inflation, 39 U.S.C. 

§ 3622(d)(1)(A); the statute defines “rates” as “fees for postal 

services,” 39 U.S.C. § 102(7).

In USPS v. Postal Regulatory Comm’n, 785 F.3d 740 (D.C. 

Cir. 2015) (“USPS I”), we wrestled with the question of 

whether, and if so under what circumstances, the Commission 

could treat Postal Service changes in mail preparation 

requirements as “changes in rates” subject to the cap. 

We rejected the Postal Service’s theory that the statute 

encompassed “only changes to the official posted prices of each 

product,” id. at 751, saying that “the Commission may have the 

authority under the price cap statute and regulations to consider 

mail preparation requirement changes of the kind at issue in this 

case as changes in rates,” id. at 755. But, mystified by the 

Commission’s efforts to explain how it would decide when a 

mailing requirement actually was a rate change, we found its 

action arbitrary and capricious and remanded to the 

Commission for it to “enunciate an intelligible standard and 

then reconsider its decision in light of that standard.” Id. at 756. 

In due course the Commission produced the order now 

before us, Order No. 3047, Order Resolving Issues on Remand
3

(Jan. 22, 2016). The order rules that a mail preparation change 

constitutes a change in rates if it results “in the deletion of a rate 

cell” or “in the redefinition of a rate cell if the mail preparation 

change causes a significant change to a basic characteristic of a 

mailing.” Id. at 15.

Applying this standard, the Commission reaffirmed its 

earlier decision that the proposed mail preparation change 

constituted a change in rates. The Postal Service moved for 

reconsideration, which the Commission denied. Order No. 

3441, Order Resolving Motion for Reconsideration of 

Commission Order No. 3047 (July 7, 2016). The Postal Service 

again petitions for review.

We now find that the Commission’s new analysis adds no 

discernible clarity to the reasoning it supplied on the last round 

and that it rests on an unreasonable interpretation of “changes 

in rates” that “goes beyond the meaning that the statute can 

bear.” MCI Telecomm. Corp. v. AT&T Co., 512 U.S. 218, 229 

(1994). “[U]nder the familiar standard of Chevron, . . . a 

‘reasonable agency interpretation prevails’”; “[o]f course, ‘if 

Congress has directly spoken to an issue then any agency 

interpretation contradicting what Congress has said would be 

unreasonable.’” Loan Syndications & Trading Ass’n v. SEC, 

882 F.3d 220, 222 (D.C. Cir. 2018) (quoting Entergy Corp. v. 

Riverkeeper, Inc., 556 U.S. 208, 218 n.4 (2009)). “Even under 

Chevron, after all, agencies only ‘possess whatever degree of 

discretion [an] ambiguity allows.’” Id. at 224 (quoting City of 

Arlington v. FCC, 569 U.S. 290, 307 (2013)). We grant the 

petition and vacate the orders. 

* * *

Our 2015 decision recites the relevant background. See 

USPS I, 785 F.3d at 744–50. We cover the same ground only 

as necessary. 
4

The Commission does not apply the rate cap by limiting 

the rate for each product in isolation. Rather, it allows the 

Postal Service to trade off above-inflation increases in the rate 

of one product with below-inflation increases in the rate of 

another product within the same class (or, of course, constantdollar decreases in rates). As a result, apart from market-driven 

changes in volume, the Postal Service’s aggregate revenue for 

each class of market-dominant products should increase no 

faster than inflation. We explained in USPS I: 

Thus, for example, the Commission’s rules ensure that the 

Postal Service may not generate extra revenue beyond the

price cap by taking advantage of the different volume 

levels of different products within a class to raise rates 

unevenly while technically complying with the class-level

price cap. To achieve this, the Commission has 

promulgated regulations specifying that the calculation of 

a “change in rates” in a class should be weighted by the

mail volume of any given rate cell in a class. 39 C.F.R. 

§ 3010.23(b). So, if the Postal Service has two rate cells 

in a given class but one of them accounts for the lion’s 

share of the mail volume, any increase in the rate for that 

rate cell will be weighted according to volume when 

determining its contribution toward the classwide rate 

change cap.

Id. at 745. (The Postal Service does not question this aspect of 

the Commission’s work.) Thanks to this interrelation of rate 

cells, the Commission might have tried to integrate mail 

preparation requirements into its authority over “changes in 

rates” with the following argument: Where an increase in mail 

preparation requirements for one cell will drive mailers to use 

a higher-priced cell, the resulting increase in volume in the 

latter should count against the rate cap. This is emphatically 

not the road taken by the Commission. We identify this 

approach not in order to offer any final judgment on it but to 
5

indicate how treating a change in mail preparation requirements 

as a rate change might, as a matter of arithmetic, be integrated 

with the Commission’s system of volumetric assessment. 

We now return to the history that has brought us here. As 

of 2009, the Postal Service had three rates for bulk mail (listed 

in descending order of price and ascending order of the related 

mailing requirement’s stringency): (1) one for mail sent 

without a barcode (the “nonautomation” rate), (2) one for mail 

sent with either a POSTNET or Basic Intelligent Mail barcode 

(the “standard automation” rate), and (3) one for mail sent with 

a Full-Service Intelligent Mail barcode (the “discounted 

automation” rate). 

In January 2013 the Postal Service disallowed use of the 

POSTNET barcode as a basis for obtaining the standard 

automation rate. POSTNET Barcode Discontinuation, 77 Fed. 

Reg. 26,185 (May 3, 2012). The Commission did not treat this 

change as a change in rates. 

In April 2013 the Postal Service sought to make a further 

change: To qualify for the standard automation rate, mailers 

would have to upgrade their barcodes to the Full-Service 

Intelligent Mail variety, which would necessarily qualify them 

for the “discounted automation” rate as well. Implementation 

of Full-Service Intelligent Mail Requirements for Automation 

Prices, 78 Fed. Reg. 23,137 (Apr. 18, 2013). The Commission 

held this redefinition of requirements for the standard 

automation rate to be a change in rates. Order No. 1890, Order

on Price Adjustments for Market Dominant Products and 

Related Mail Classification Changes (Nov. 21, 2013). Its 

explanation was that the barcode changes “require mailers to 

alter a basic characteristic of a mailing in order for the mailing 

to qualify for the same rate category for which it was eligible 

before the change in requirements.” Id. at 18. It ruled that this 

change in mailing requirements, coupled with changes in 
6

nominal rates that the Postal Service had earlier proposed, 

would in the aggregate violate the price cap. Id. at 35–37. 

That ruling led to our decision in USPS I, to the 

Commission’s new articulation of its theory and application of 

that theory against the Postal Service, and thus to the petition 

now before us. 

* * *

Our 2015 decision laid down a marker for what might 

qualify as rates and “changes in rates.” Time and again we tied 

“rates” to payments by mailers to the Postal Service, and 

“changes in rates” to changes in those payments. We started 

by pointing to the controlling statute’s definition of “rates” as 

“fees for postal services.” 39 U.S.C. § 102(7); USPS I, 785 

F.3d at 751. We saw the central issue as being identification of 

the circumstances where “the Service changed mail preparation 

requirements that would have the likely effect of changing 

rates paid by certain mailers for sending the same mailpieces

that they sent in the prior year.” USPS I, 785 F.3d at 746

(emphasis added). We said that under the barcode changes 

mailers “who did not upgrade their systems to comply with the 

full-service requirements would have to pay the higher, 

undiscounted rates.” Id. at 747. We framed the basic statutory 

issue as whether “changes in rates” encompassed not only 

changes in posted prices but “also changes to the prices 

actually applied to particular mailpieces, as the Commission 

argues.” Id. at 751 (emphasis added). We saw the Commission 

as seeking to regulate “changes in rates paid by mailers.” Id. at 

752. And, since a change in posted prices and a change in mail 

preparation requirements “can cause a change in the rates paid 

by mailers,” id. at 753 (emphasis added), we accepted the 

Commission’s reading where the Postal Service failed to show 

anything in the statute or regulations requiring a distinction 

between those two types of changes, see id. 
7

We note that USPS I’s link of rates to amounts paid to the 

provider is anything but unique. “The standard dictionary 

definition of the term ‘rate’ (as used with reference to prices) is 

‘[a]n amount paid or charged for a good or service.’” FERC v. 

Elec. Power Supply Ass’n, 136 S. Ct. 760, 777 (2016) (quoting 

Black’s Law Dictionary 1452 (10th ed. 2014)). It is “the 

amount of money a consumer will hand over in exchange for” 

a product or service. Id. 

In 2015 we were baffled by the Commission’s contrasting 

treatment of changes in bundling requirements for flat-shaped 

mailpieces. We noted its acknowledgement that the 

requirement “‘may result in some mailers paying higher prices’ 

because those mailers who did not change their shipping 

methods would be forced into a higher rate cell,” but quoted the 

Commission as saying these changes “do not count as changes 

in rates because the requirements ‘do not change the basic 

characteristics of a mailing.’” USPS I, 785 F.3d at 754. We 

observed, “This is hard to fathom.” Id. 

In its present order the Commission seems just as devoted 

to its previous murky notion of changes in “basic 

characteristics”: Its new formula for finding whether a 

redefinition of a rate cell produces a change in rate turns on 

whether a change in mailing requirements “causes a significant 

change to a basic characteristic of a mailing.” The Commission 

now defines a “basic characteristic of a mailing” as “what the 

mailer sends” and “how the mailer sends it,” while measuring 

significance “by assessing the operational adjustments and/or 

costs required by the mailer for compliance with the new mail 

preparation requirement.” Order No. 3047 at 15–17. This new 

verbiage, which the Commission offers with no effort to link 

the words to any clear concept of “changes in rates,” can hardly 

be said to advance matters from its earlier reliance on “basic 

characteristics” simpliciter. 
8

We need not devote more effort to evaluating the 

Commission’s diminutive increase in clarity because its 

explanation suffers from a more fatal flaw: It seeks to expand 

the Commission’s regulatory domain beyond any permissible 

meaning of “rates” under § 102(7) and “changes in rates” under 

§ 3622. In USPS I we found the latter section “ambiguous” on 

the question whether “changes in rates” could mean something 

more than changes to posted rates. 785 F.3d at 751–52. But of 

course that ambiguity doesn’t give the Commission carte 

blanche to treat anything as a change in rates. “[W]hile 

ambiguity in a statute may imply a ‘delegat[ion] to the agency 

[of] the power to fill those gaps,’ the agency must still stay 

within the bounds of the delegation in promulgating regulations 

under the statute.” Aid Ass’n for Lutherans v. USPS, 321 F.3d 

1166, 1177 (D.C. Cir. 2003) (quoting Cty. of Los Angeles v. 

Shalala, 192 F.3d 1005, 1016 (D.C. Cir. 1999)); see also City 

of Arlington v. FCC, 569 U.S. 290, 307 (2013); Village of 

Barrington v. Surface Transp. Bd., 636 F.3d 650, 659–60 (D.C. 

Cir. 2011). 

We have already reviewed at length USPS I’s equation of 

rates with sums paid for a mailing. At no point did we suggest 

that a change in mailing requirements might qualify as a change 

in rates simply because it might change a mailer’s aggregate 

cost for sending an item. The Commission offers no case 

holding “rate” or “change in rate” to encompass such costs or 

changes. No aspect of its new formulation even attempts to 

assess whether a mail preparation change, “significant” or not, 

will cause a mailer to pay more to the Postal Service.

Unlike the Commission, the Postal Service identifies 

circumstances where a change in mailing preparation costs 

would yield “a change in the rates paid by mailers,” USPS I, 

785 F.3d at 753: 
9

This is not to say that compliance costs are inherently 

irrelevant to the issue of prices paid. . . . If a mailer 

believes that a new mail-preparation requirement requires 

it to incur compliance costs that are higher than the costs 

associated with simply paying a higher rate, then a rational 

customer will not pay those costs and instead will pay the 

higher rate (or perhaps leave the mail entirely). If, on the 

other hand, the customer believes that the compliance costs 

are lower than the cost of paying higher rates, then the 

mailer will comply with the requirement and its mail 

volume will accordingly not shift from one rate category 

to another.

Reply Comments of the United States Postal Service, at 9 (Aug. 

31, 2015); see also Motion for Reconsideration of Order No. 

3047, at 11 (Feb. 22, 2016) (“The Commission, however, 

makes no attempt to explain why the magnitude of a mail 

preparation change is the proper basis for determining whether 

mailers will shift to paying higher rates.”). 

Curiously, the Commission recognized in briefing USPS I

that a mail preparation requirement change would present

mailers with a choice between compliance and noncompliance. See Resp. Br. at 16, USPS I, 785 F.3d 740 (D.C. 

Cir. 2015) (No. 13-1308) (“And those mailers who previously 

had used basic barcoding now had to choose between paying 

higher prices, or making processing changes that the Postal 

Service itself acknowledged would be ‘significant.’”). Before 

us, however, it disclaims any obligation to take account of such 

choices. 

Because the Commission blocked the Postal Service’s 

proposed barcode change, we are able to examine mailer 

behavior under the rate structure existing at the time. It 

demonstrates the Commission’s drastic implicit underestimate 

of mailer readiness to adopt the Postal Service’s most costly 
10

(for mailers) barcodes. At the time of its original proposal in 

2013, 64% of all eligible bulk mail used the Full-Service 

Intelligent Mail barcode and therefore qualified for the 

discounted automation rate. The Commission calculated that 

the entire remaining 36%—the mail using only the Basic 

Intelligent Mail barcode—would necessarily pay higher rates if 

it had accepted the proposed change in standard automation 

eligibility requirements (requiring Full-Service Intelligent Mail

barcodes). But just two years later (without the proposed 

changes taking effect and so far as appears with no other 

alteration of mailers’ incentives), Full-Service barcode 

utilization jumped to over 88%. Put another way, barcoded 

mail not enjoying the most discounted rate fell from 36% to 

12%. Had the Postal Service proceeded in the face of the 

Commission’s ruling, it would have been docked over $855 

million in price cap authority under the assumption that it 

would receive that amount in increased prices. The Service 

would never have seen any of it.

Because the rate cell “redefinition” aspect of the 

Commission’s new theory makes no effort to single out mail 

preparation changes that induce mailers to shift to a higherpriced service, it goes beyond “the bounds of the delegation” 

identified in USPS I. Aid Ass’n for Lutherans, 321 F.3d at 

1177. 

The Commission’s alternative—asking if a rate cell has 

been deleted—fares no better. First, there is no impermeable 

line between redefinitions and rate cell deletions. Nearly all 

redefinitions can be alternatively characterized as deletions. 

Take the facts of this case. Before the proposed barcode 

change, there were three rates. The Postal Service’s new 

insistence on use of the Full-Service Intelligent Mail barcode 

for the standard automation rate could be seen as either 

redefining or deleting that rate. It redefined the rate in the sense 

of requiring the Full-Service barcode for mailings to qualify for 
11

it. And it deleted the rate in the sense that no mail would 

henceforth be charged the standard automation rate: mailers 

would pay either the nonautomation rate or the discounted 

automation rate. We do not see how the semantics of labeling 

in any way saves the Commission’s interpretation or ties it any 

more closely to the regulatory authority as defined by § 3622. 

Further, the Commission’s deletion theory eschews any 

measure of significance altogether. The redefinition concept 

attempted a measure of significance, but it used an absolute 

metric that focused solely on the magnitude of costs and was 

therefore of no value in predicting possible mailer migration to 

higher-priced products. The deletion concept goes further, 

making no attempt to measure significance at all.

In defense of both its redefinition and deletion formulae, 

the Commission offers two principal responses, neither of 

which alters our conclusion that its order has adopted a notion 

beyond the bounds of the relevant statutory phrase: “changes in 

rates.” 

The Commission first points to one of its regulations, 39 

C.F.R. § 3010.23, which describes how the Commission will 

calculate the magnitude of a change in rate. That section, 

discussed at the outset of the opinion, weights any change in 

rates by the volume of mail for the product in question, and uses 

an assumption that volume is constant, deriving the data “from 

the most recent available 12 months.” Id. § 3010.23(d)(1). 

Modifications to the volume inputs are permitted in some 

circumstances: “The Postal Service shall make reasonable 

adjustments to the [volume levels] to account for the effects of 

classification changes such as the introduction, deletion, or 

redefinition of rate cells.” Id. § 3010.23(d)(2). “Whenever 

possible, adjustments shall be based on known mail 

characteristics or historical volume data, as opposed to 

forecasts of mailer behavior.” Id. § 3010.23(d)(3). 
12

The Commission effectively argues that if its order

complies with its regulation, that is the end of the matter. The 

Commission reminds us that § 3010.23 speaks of deletions and 

redefinitions, and privileges “historical volume data” over 

“forecasts of mailer behavior” whenever “possible.” Because 

the Commission asserts that the disputed barcode change is 

properly characterized as either a redefinition or a deletion, and 

because the Commission has adopted a test that avoids mailer 

forecasts, the Commission contends that it need not show 

anything further to establish that the barcode rule would effect 

a rate change.

The Commission’s reliance on its regulation plainly cannot 

justify its giving the statutory “changes in rates” a meaning 

outside the range of genuine ambiguity. The Commission 

recognized as much in USPS I, observing, “[W]hether or not 

the Commission correctly interpreted its own regulations has 

no bearing on the separate question of whether the Commission 

correctly interpreted 39 U.S.C. § 3622(d).” Resp. Br. at 25, 

USPS I, 785 F.3d 740 (No. 13-1308). Further, the regulation 

does not seem relevant. Section 3010.23, titled “Calculation of 

percentage change in rates,” appears designed simply to govern 

that process. The statutory question is how to identify when a 

mail preparation change can be deemed to effect a change in 

rates; the regulation answers a separate and subsequent 

question about how to calculate the magnitude of such a 

change. 

It is true that we were called on to interpret § 3010.23(d) 

in our 2015 decision. USPS I, 785 F.3d at 752–53. The 

question we confronted was whether the regulation itself 

unambiguously barred the Commission’s interpretation that 

“classification changes” could refer to mail preparation 

changes. Id. at 752. We held that it did not. But we did not 

say that the Commission could treat as a rate change every mail 

preparation change that could be somehow shoehorned into the 
13

text of § 3010.23(d)(2). To the extent that in 2015 we affirmed 

the historical volume rule (i.e., the assumption, for purposes of 

calculating the extent of a rate change, that volume is constant

based on the prior year’s data), we did so in the context of the 

question of how to calculate a rate change—not in asking 

whether a rate change has occurred in the first instance. Id. at 

756; Pet. Br. at 49–54, USPS I, 785 F.3d 740 (No. 13-1308); 

Resp. Br. at 33–40, USPS I, 785 F.3d 740 (No. 13-1308). 

The Commission also contends that it would be infeasible 

to compare the costs of compliance with the rate increase a 

mailer would face if it failed to comply with a new requirement. 

We offer two responses. First, even if these practical concerns 

were valid, they couldn’t trump a statutory limit. The 

Commission must first confine its oversight to “changes in 

rates” and then, within that realm, craft a workable standard. 

Looking solely to mailer costs (as the Commission would 

prefer), without comparing those costs to the additional 

payment a mailer would avoid by making the mail preparation 

change, is no basis for predicting that mailers will pay a higher 

rate. Second, it is unclear whether the calculation the 

Commission embraces (securing cost estimates from the 

mailers and pegging them as “significant” or not) is necessarily 

less onerous than comparing mailers’ compliance costs with the 

offsetting rate benefit. If there is an advantage, it seems to lie 

mainly in the Commission’s extravagant claim of discretion in 

pinning the “significant” tag on a number (here it relies on 

estimates of the one-time costs for “larger mailers” ranging 

from $400,000 to $3.25 million, without even saying which 

number makes the grade). The comparison required in order to 

ascertain mailer movement to a higher rate might be more 

complex, but mainly because the costs (however estimated) 

would have to be compared with a benchmark—the rate 

increment faced by mailers—that would be quite precise. 
14

* * *

Our 2015 decision found that the Commission may have 

authority to treat some Postal Service changes in mail 

preparation requirements as changes in rates. But that potential 

authority depends on its articulating and applying a test 

consistent with the statute. Its present orders have failed to do 

so. 

We grant the petition for review and vacate the 

Commission’s orders.

So ordered.