Opinion ID: 4525042
Heading Depth: 2
Heading Rank: 3

Heading: The Commission’s Disputed Order in this Case

Text: On January 3, 2019, the Commission issued the Order modifying its “appropriate share” determination under § 3633(a)(3) that is the subject of the dispute in this case. In the past, the Commission had determined that “all competitive products collectively” must cover at least 5.5% of the Postal Service’s institutional costs. See Order at 4-5, J.A. 523-24 (summarizing the Commission’s 2007 and 2012 orders). In the 2019 Order, however, the Commission decided that the “appropriate share” of the Postal Service’s institutional costs to be covered by “all competitive products collectively” should be set using a dynamic formula. In short, the Commission’s formula relies on two primary variables: the “Competitive Contribution Margin” and the “Competitive Growth Differential.” These variables are meant to represent the Postal Service’s market power and market position. See id. at 19-28, J.A. 538-47. The Commission intends to use the formula “to annually update the appropriate share based on prevailing competitive conditions in the market and other relevant circumstances.” Id. at 19, J.A. 538. For our purposes, however, the details of the Commission’s formula-based approach are not critical. Instead, our focus in this case is on whether the Commission, in making its determination, adequately discharged its obligation under § 3633(b) to “consider all relevant circumstances, including the prevailing competitive conditions in the market, and the degree to which any costs are uniquely or disproportionately associated with any competitive products.” Therefore, this background section is similarly focused on the Commission’s § 3633(b) analysis and in particular on the Commission’s “consider[ation of] . . . the degree to which any costs are uniquely or disproportionately associated with any competitive products.” 12 In a section of its Order titled “Connection to Section 3633(b) Criteria,” the Commission recited the factors that the Accountability Act says it “shall consider,” and then explained its position on costs “uniquely or disproportionately associated with” competitive products: The Commission has repeatedly found that there are no costs uniquely or disproportionately associated with competitive products that are not already attributed to those products under the Commission’s current cost attribution methodology. As a result, the formula-based approach does not separately account for such costs. Order at 28-29, J.A. 547-48 (citations omitted). The Commission’s conclusion draws on its analysis in earlier notices in the same docket. See Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution Requirement for Competitive Products, No. 4402, Dkt. No. RM2017-1 (P.R.C. Feb. 8, 2018) (“Initial Notice”); Revised Notice of Proposed Rulemaking, No. 4742, Dkt. No. RM2017- 1 (P.R.C. Aug. 7, 2018) (“Revised Notice”). In its Initial Notice, for instance, the Commission offered an explanation of its thinking: The Commission finds that there are no costs uniquely or disproportionately associated with competitive products that are not already attributed to competitive products. Under the Commission’s methodology, any cost that is uniquely or disproportionately associated with any competitive product is identified as an attributable cost because it exhibits a reliably identifiable causal relationship with 13 a specific competitive product. With regard to costs that are disproportionately associated with competitive products, the Commission’s cost attribution methodology identifies relationships between costs and cost drivers, which include mail characteristics such as weight and shape (e.g., letters or parcels). . . . In this way, the costs attributed to products reflect any disproportionate association of those costs with any specific products (including any competitive products). Under the Commission’s methodology, the Commission also classifies any cost that is uniquely associated with any product (including any competitive product) as attributable to that product. These costs are often referred to as product-specific costs. For example, advertisements for a specific product and supplies for money orders are unique costs attributed to specific products under the Commission’s methodology. .... For the reasons discussed above, the Commission concludes that its costing methodology already accounts for the “the degree to which any costs are uniquely or disproportionately associated with any competitive products.” To the extent that any costs can be attributed to specific competitive products, they are already distributed under the Commission’s current costing methodology and are not included in the institutional costs of the Postal Service. Initial Notice at 43-45, J.A. 147-49; see also Revised Notice at 52-53, J.A. 304-05 (summarizing this same point). 14 Later, in response to comments from UPS and others, the Commission provided a succinct summary of the position it took in its Initial Notice. See Order at 138-162, J.A. 657-81. In [the Initial Notice], the Commission found that there are no costs uniquely or disproportionately associated with competitive products that are not already attributed to those products. This is because all costs that are uniquely or disproportionately associated with competitive products exhibit a reliably identified causal relationship with a specific competitive product or group of products and are therefore attributed. The Commission described “unique” costs as product-specific costs and determined that any cost that is uniquely associated with a competitive product is attributed to that product through a reliably identified causal relationship. . . . In addition, the Commission found that any cost disproportionately associated with a competitive product is attributed to that product through the cost methodology’s use of cost drivers. . . . In this way, the costs attributed products reflect any disproportionate association of those costs with specific products. As a result, the Commission determined that both types of costs are attributed to the competitive products that cause them. Order at 138-39, J.A. 657-58 (citing Initial Notice at 43-44). Finally, in response to UPS’s comment suggesting that the Commission’s analysis mistakenly conflates the “associated with” standard and the “reliably identified causal relationships” standard, the Commission concluded that “UPS overlooks key terms in section 3633(b), as well as the context of the statutory 15 scheme as a whole.” Order at 143, J.A. 662. The Commission emphasized the “degree of flexibility . . . inherent in the appropriate share provisions of section 3633” and the lack of any mechanical relationship between the Commission’s consideration of the statutory factors and the Commission’s ultimate determination. Id. at 144, J.A. 663. The Commission continued: For the relevant factor at issue, “the degree to which any costs are uniquely or disproportionately associated with any competitive products,” UPS focuses on only a portion of the statutory language— “disproportionately associated.” However, in reading the relevant factor in its entirety, the use of the words “degree” and “any” plainly contemplate that there may be no uniquely or disproportionately associated competitive product costs. Congress does not require costs to be found; only for the Commission to “consider” whether “any” exist. Nothing in section 3633(b) prevents the Commission from concluding as it has—that all costs uniquely or disproportionately associated with competitive products are, in fact, captured by the costing methodology it currently employs pursuant to section 3633(a)(2). Order at 144, J.A. 663. In short, the Commission’s position appears to be that the statutory phrase “costs . . . uniquely or disproportionately associated with any competitive products” is no broader than the phrase “direct and indirect postal costs attributable to [a particular competitive] product through reliably identified causal relationships.” And the Commission appears to base that conclusion on the assumption that costs are uniquely or 16 disproportionately associated with competitive products only if competitive products can be reliably said to cause such costs.