Opinion ID: 184914
Heading Depth: 2
Heading Rank: 4

Heading: Priority Mail Institutional Costs

Text: UPS next challenges the Commission's allocation of Priority Mail institutional costs.17 The Commission assigns institu__________ 17 Priority mail is a service available for all mailable items up to70 pounds in weight that offers somewhat more expedited delivery tional costs by establishing a separate markup for each classof mail and then applying the markup to the class's attributable costs. In this ratemaking the Commission recommendedan institutional markup for Priority Mail of 66.1%. UPScontends this markup is artificially low and shifts to FirstClass mail institutional costs reasonably assignable to PriorityMail in violation of section 3622(b)(3). We conclude theinstitutional costs for Priority Mail are, as the statute requires, reasonably assignable to the subclass and we therefore uphold them. As we noted above, once the Commission has establishedattributable costs under its two-tier cost methodology, it mustthen allocate institutional costs by  'reasonably assign[ing]'the remaining costs to the various classes of mail on the basisof the other factors set forth in s 3622(b). National Ass'n ofGreeting Card Publishers, 462 U.S. at 815 (internal citationomitted). In assigning Priority Mail institutional costs, theCommission relied heavily on the second statutory factorincluded in section 3622(b): the value of the mail serviceactually provided each class or type of mail service to boththe sender and the recipient, including but not limited to thecollection, mode of transportation, and priority of delivery. 39 U.S.C. s 3622(b)(2). The Commission cited testimony thatPriority Mail has a high intrinsic value of service, whichmight justify a higher share of institutional costs, but alsonoted that it has a high own-price elasticity, meaning thatrate increases might drive away customers despite the highintrinsic value, therefore calling for a lower markup. PRCOp. R97-1 at 359. The Commission further pointed to testimony questioning the value of Priority Mail's service because(1) it often falls short of one- and two-day delivery benchmarks, (2) its service will deteriorate further with implementation of a new processing network service, (3) its market __________ than First-Class Mail. On this basis, it competes in the two-daydocument and package market. Priority Mail also constitutes theextension of First-Class-Mail services to pieces weighing 11 ouncesor more. Consequently, Priority Mail consists both of monopolyletter mail and items that could be delivered by a competingcarrier.... PRC Op. R97-1 at 352. share has been decreasing, and (4) it lacks enhancementsavailable with private priority delivery services, such as automatic insurance coverage, billing, payment and rate optionsand guaranteed delivery. Id. at 360-62. Based on its perception of the value of Priority Mail service and of thedeleterious effect a price increase might have, the Commission concluded that a reduction in the proportional contribution by Priority Mail is not unreasonable, especially sinceeven the lower markup the Commission recommended led toa rate increase for Priority Mail that exceeded the systemwide average. Id. at 362. UPS challenges the 66.1% PriorityMail markup primarily on two grounds. We find neither onepersuasive. First, UPS contends that in the 1997 ratemaking theCommission impermissibly changed course without explanation because for the first time it assigned a lower markup toPriority Mail than to regular First Class mail. This argument misapprehends the Commission's institutional cost assignment process. The Commission has not, in this ratemaking or previous ones, assigned the Priority Mail markupbased on its relationship to the First Class markup, as ismanifest from the widely varying gaps between the twomarkups in each of the ten ratemakings conducted under theAct. See JA vol. i 706. Instead, the Commission assignedthe markup here, as before, based on consideration of themandatory statutory factors. See PRC Op. R97-1 at 371.18 It was these factors, and the second one in particular, that ledthe Commission to assign lower institutional costs to PriorityMail. UPS also argues that consideration of the fourth and fifthstatutory factors (the effect of rate increases upon the __________ 18 The Commission did remark that, because Priority Mail is anextension of First Class Letters and Sealed Parcels, assigning it amarkup similar to First-Class letters is justified, PRC Op. R97-1at 362, but only after it assigned the markup-apparently as back-upjustification and in answer to UPS's claim that the relationshipbetween the two markups should stay the same as in the previousratemaking. See PRC Op. R97-1 at 359-60. general public, business mail users, and enterprises in theprivate sector of the economy engaged in the delivery of mailmatter other than letters and the available alternativemeans of sending and receiving letters and other mail matterat reasonable costs, 39 U.S.C. s 3622(b)(4), (5) requires thatthe Commission assign lower universal costs to the monopolyregular First Class mail than to Priority Mail because thosefactors were intended to protect the interests of First Classcustomers, who have no private alternative, and of PriorityMail competitors, each of which will be harmed by higherFirst Class and lower Priority Mail rates. We disagree. While the Commission must  'take into account all the relevant factors and no others,'  Mail Order Ass'n, 2 F.3d at 426(quoting Association of Am. Publishers, 485 F.2d at 775), itneed not give each factor equal weight.  '[U]nder familiarjurisdictional principles,'  we  'may not, and under humanlimitations generally could not, reassess the weights given bya rate-making agency to different factors, absent a legislativedirection as to precisely what gravity each factor bears.'  Id.(quoting Association of Am. Publishers, 485 F.2d at 774-75). Given that the Act provides no such direction, we cannot faultthe Commission's determination that the second factor is thedecisive one here. In any event, UPS's reading of thestatutory provisions it invokes is unduly narrow. By itsterms, s 3622(b)(4) allows the Commission to consider lowering rates in order to protect the general public [and] business mail users, as well as raising them in the interests ofenterprises in the private sector ... engaged in the deliveryof mail matter. As to s 3622(b)(5), the Commission hasconsistently, and reasonably, held that it authorizes a reduction in rates to maintain the position of the Postal Service asa competitor in the mail delivery industry.