Opinion ID: 184914
Heading Depth: 2
Heading Rank: 3

Heading: Alaskan Parcel Post Air Costs

Text: United Parcel Service (UPS) first challenges the amount ofthe Commission's attributable costs for Parcel Post mail15 onthe ground that the Commission improperly excluded fromthem a substantial portion of air transportation costs attributable to delivering Parcel Post mail to the remote Alaskanbush country. Because the Alaskan bush country is accessible only by air, all mail delivered there, including nonpreferential Parcel Post mail, which is usually carried by groundtransport, must be delivered by air, inflating considerably thecosts of delivering Parcel Post mail to the area. The Commission elected to attribute only a portion of the air delivery __________ 15 Parcel Post includes mailable matter weighing 16 ounces ormore, but not exceeding 70 pounds in weight or 108 inches incombined length and girth. In general, Parcel Post is used formatter not eligible for mailing in any other Standard Mail subclass,and consists primarily of merchandise. PRC Op. R97-1 at 476. costs to the Parcel Post subclass,16 however, concluding theremainder was attributable to the Act's universal serviceobligation, which the Commission found to be the primarycause of the air costs. See 39 U.S.C. s 101(a) (1994) (providing Postal Service shall provide prompt, reliable, and efficient services to patrons in all areas and shall render postalservices to all communities) (emphasis added). Because thestatutory term attributable is ambiguous, we defer to theCommission's reasonable interpretation of it and uphold itsconsequent decision to attribute only a portion of Alaskan aircosts to the Parcel Post subclass. As noted above, section 3622(b)(3) requires that each classof mail or type of mail service bear the direct and indirectpostal costs attributable to that class or type. Id.s 3622(b)(3). Thus, all costs that in the judgment of theRate Commission are the consequence of providing a particular class of service must be borne by that class. NationalAss'n of Greeting Card Publishers, 462 U.S. at 833. In thisratemaking, as in past ratemakings, the Commission generally attributed costs under the volume variability methodology, which classifies a cost as volume variable and thereforeattributable to a particular class if the cost rises as thevolume of the particular class of mail rises. See Mail OrderAss'n, 2 F.3d at 427 (Traditionally, access costs have beenattributed to mail subclasses based on a 'volume variability'formula that related 'access costs' to a particular subclass'smail volume. Generally, the greater the volume of the subclass's mail, the greater the attributed access costs.); seealso Newsweek, Inc. v. USPS, 663 F.2d 1186, 1207-08 (2d Cir.1981), aff'd and remanded, 462 U.S. 810 (1983). Here, however, the Commission elected to deviate from strict volumevariable causation because of the unusual and constraininggeographical circumstances of Alaskan Parcel Post service. __________ 16 Although the Act directs the Commission to recommendchanges in rates or fees in each class of mail 39 U.S.C. s 3622(a)(emphasis added), the Commission has carved out discrete subclasses of mail classes that it deems warrant separate consideration. In its decision the Commission applied a premium costingapproach under which the attributable costs of deliveringAlaskan Parcel Post were calculated based on the nationwideaverage costs of [ ] highway transportation, while [t]heremaining portion, approximately $70 million for the lastyear, is transferred to the institutional cost pool and recovered through the markup procedure pursuant to the Act. PRC Op. R97-1 at 220. The Commission's decision explainedthis attribution only briefly: The costs of serving areas without road access, the socalled Bush Country of Alaska, are considerably higher than the costs of providing service to other areas in the United States. Since the Postal Service's universal service obligation extends to citizens of all regions of the United States, it would not be appropriate to recover all these costs from the nonpreferential classes carried by intra-Alaska-Air. Id. The Commission explained its reasoning more clearlyand extensively in the 1990 postal ratemaking decision inwhich, as the Commission specifically noted here, for the firsttime a portion of the costs of intra-Alaskan transportationcosts ... ha[d] been considered institutional, although theyare recognized as being volume variable in nature. Id.; seeOpinion and Recommended Decision of the United StatesPostal Commission in Docket No. R90-1 (January 4, 1991),III-194 to -237 (JA vol. i 814). In the 1990 ratemaking the Commission determined: The record supports a finding that nonpriority Alaska air costs are attributable only to the extent that they substitute for the surface costs that would be incurred if that transportation service were available. The remaining costs, which we refer to as the universal service obligation premium, are institutional. These costs are caused by the Postal Service's statutory obligation to serve the entire nation. Id. at III-195. The Commission defended its use of thepremium costing approach as reasonable under the circumstances: Our approach is the one supported by the record before us. The evidence shows that the costs are being overattributed, and it is our statutory duty to be as accurate as possible in attributing costs. Over-attribution can be just as much an error as the under-attribution proscribed by section 3622(b)(3). Our approach is a better reflection of reality. And, as this record shows, the potential to support the rate design and rate schedules of two subclasses, parcel post and Priority Mail, requires that the costing method be improved. Id. at III-212. The Commission also explained why it considered the Alaskan air costs caused by and therefore attributable to the Postal Service's universal mail obligation: In considering these costs and the mail which is being carried on both mainline and bush transportation, we look for the true causal connection. Regardless of how these costs might actually vary with volume, we find that the premium is caused by the statutory obligation to provide universal service rather than the mail volumes. It is true that if none of this mail existed, the costs would not be incurred. It is difficult to believe, however, that this nonpreferential mail would be incurring these very high air costs in the absence of a statutory mandate to serve the entire nation. The Postal Service interprets its duty as one to offer its basic services to every part of the country, and not to deny the lower priced parcel post service to people who live in remote areas which have only expensive transportation available. Id. at III-213 to -14 (footnote & record citation omitted). The Commission's reasoning adequately supports its bifurcated attribution of Alaskan air costs. Nevertheless, UPS contends the Commission's use of thepremium cost approach violates the Act because it either (1)fails to allocate to Parcel Post the Alaskan air costs that theCommission has found attributable to that subclass or (2) failsin the first instance to find that such costs are attributable toParcel Post even though the Commission acknowledged thecosts are recognized as being volume variable in nature. PRC Op. R97-1 at 220. UPS's first objection is easilyanswered: the Commission specifically found that the premium air delivery costs are attributable not to Parcel Postservice but to the statutory universal service obligation. Asfor the second, although the Commission has generally usedvolume variability to attribute costs, the Act itself does notrequire any specific cost method or define the term attributable, which, as the Commission's analysis demonstrates, canhave various meanings that support various attribution methods. See National Ass'n of Greeting Card Publishers, 462U.S. at 825-26. (We agree with the Rate Commission'sconsistent position that Congress did not dictate a specificmethod for identifying causal relationships between costs andclasses of mail, but that the Act 'envisions consideration of allappropriate costing approaches.' ) (quoting Commission's decision). Instead, the Act leaves it to the Commissioners, inthe first instance, to decide which methods provide reasonableassurance that costs are the result of providing one class ofservice. Id. at 833; see also id. at 827 (On its face, there isno reason to suppose that s 3622(b)(3) denies to the expertratesetting agency, exercising its reasonable judgment, theauthority to decide which methods sufficiently identify therequisite causal connection between particular services andparticular costs.). Because the statute is silent or ambiguous on which cost method to use, the question for the courtis whether the agency's answer is based on a permissibleconstruction of the statute. Chevron USA, Inc. v. NaturalResources Defense Council, Inc., 467 U.S. 837, 843 (1984); seealso National Ass'n of Greeting Card Publishers, 462 U.S. at814-15. Based on its analysis in the 1990 ratemaking decision,we conclude that the Commission's choice of the premiummethodology reflects a reasonable construction of the Act andmust therefore be upheld.