Opinion ID: 407579
Heading Depth: 2
Heading Rank: 4

Heading: service-related costs

Text: 64 In the course of its Modification Decision, the Board explicitly rejected the concept of Service-Related Costs (SRC), which the PRC had employed in formulating each of its recommended decisions. See Modification Decision at 16-18, J. App., Vol. 1 at 355-57. Several parties now contend that the Board encroached upon the rate-making authority of the PRC in doing so. Their theory, in short, is that the selection of costing methodologies is within the PRC's discretion, and that the Board is bound by that selection in modifying a recommended decision. 65 As we discussed in Newsweek, 663 F.2d at 1194-96, 1201-03, the SRC concept was devised in specific response to the D.C. Circuit's mandate that postal rates reflect cost-of-service principles to the maximum extent possible. While we concluded in Newsweek that the concept was not irrational and could therefore be used in formulating rates, we also held, consistent with our reading of 39 U.S.C. § 3622(b), that the concept was by no means mandatory in application. Id. at 1201-03. 66 While we had no occasion in Newsweek to address the issue now before us-whether the Board is bound by the PRC's selection of costing methodologies in modifying a PRC recommended decision-we did imply during the course of our discussion that the choice of methodologies is normally within the province of the PRC. Thus, in holding that the maximal use of cost-of-service principles was permissible though by no means mandatory, we stated, the PRC may still adhere to the methodology it has employed in R80-1, and under our interpretation of the statute it is free to do so. Id. at 1201 (emphasis added). The legislative history of the Act reinforces this view that the choice of costing methodologies is a matter entrusted to the expertise of the PRC. The PRC, as we stated in Section III, supra, is comprised of full-time economists and rate analysts whose function is to deal with the highly intricate problems of ratemaking, H.R.Rep.No.91-1104, 91st Cong., 2d Sess. 5 (1970), reprinted in (1970) U.S.Code Cong. & Ad.News 3649 at 3654. We think it unquestionable that in creating a body especially tailored to devise postal rates, Congress intended for that body to exercise its expertise in selecting appropriate methodologies. This does not answer the question, however, of whether the Board is bound by those selections. 67 We observe at the outset that the Postal Reorganization Act is silent on the authority of the Board to reject methodologies chosen by the PRC. Thus, the Board's power to review methodologies, if it does exist, must evolve from its general authority to scrutinize recommended rate decisions under section 3625. As we have repeatedly stated, the Board's primary responsibility under that section is to assure that the Postal Service operates on a balanced budget in a prompt, reliable, and efficient manner, see 39 U.S.C. § 101. Where the Board finds, as it did here, that the anticipated revenues from the recommended rates will not meet the Service's total costs, it has an obligation ultimately to reject those rates. The anticipated revenue deficiency may be the result of a variety of causes. The deficiency the Board foresaw in this proceeding was in large part a result of the PRC's wrongful reduction of the Service's requested revenue levels. See Newsweek, 663 F.2d at 1203-06. We think that it is also possible that the source of a predicted revenue deficiency may be a faulty methodology employed by the PRC in formulating its recommended decision. Where the Board finds on the basis of record evidence that a methodology will endanger the Service's balanced budget, the Board is empowered to reject the recommended decision, and implicitly, the methodology. 68 Of course, the Board carries a heavy burden whenever it rejects a recommended decision of the PRC to support its belief that the expected revenues would be inadequate. While the Board need not prove that the methodology will jeopardize revenues-an impossible showing before the rates take effect-it must clearly demonstrate that the recommendation is likely not to produce the required revenue. 116 Cong.Rec. 27,606 (1970) (remarks of Rep. Udall). 69 Under these standards, the Board has yet to meet its burden. The only statement by the Board concerning the impact of the SRC concept on revenues appeared in its Modification Decision : 70 We are also concerned about the future consequences of the service-related costs concept. These so-called service-related costs are actually fixed costs which do not vary with volume. If the volume of a category which receives priority in delivery declines, the pool of costs remain unchanged but will be spread over fewer pieces, increasing the per piece share of the mail to which the costs are apportioned. Any resulting diversion of volume from those categories, either to categories with lower delivery priorities or outside of the postal system, could have a spiraling effect, increasing the per piece share of costs borne by all mail. 71 We are concerned that this defective costing concept could have uneconomic and unbusinesslike effects on the system. The dangers inherent in the concept of service-related costs may constrain the ability of the postal system to evolve new categories of mail based on actual service distinctions. We therefore believe that rejection of the service-related costs concept is the prudent as well as the correct course of action. 72 Modification Decision at 17-18, J. App., Vol. 1 at 356-57. The Board's findings that the SRC concept could have a spiraling effect and could have uneconomic and unbusinesslike effects on the system are insufficient to reject a costing determination by the PRC. The Board must demonstrate, with appropriate support, that the concept is likely to have such effects. Accordingly, in remanding for the class by class explanations we discussed in Section III, supra, we also instruct the Board to submit additional data and explanations to meet its burden on this issue.