Court Opinion

ID: 7279202
Source: CourtListenerOpinion
Date Created: 2022-07-25 20:05:39.796026+00
Date Added: 2024-06-11T16:18:58.771882
License: Public Domain

BAZELON, Chief Judge,
concurring with whom
Circuit Judge TAMM and Senior District Judge WYZANSKI join:
The Postal Reorganization Act of 1970 resulted from Congress’ determination to remove the Post Office Department from the political arena, and to provide for a system of administrative controls that would guarantee efficient, economical, and equitable operation of the nation’s mails.1 This case shows *406that the Postal Service has some distance to go if it is to reach that goal in fixing rates. My vote to affirm is based, first, on my belief that this lack of progress may be properly laid to the novelty of the undertaking,2 and, second, on the record’s assurances that the Postal Rate Commission is making a sincere effort to regularize the Postal Service’s procedures and accounting principles.3
One troubling aspect of the Postal Service’s approach in this case requires comment. The Act directs that the Postal Rate Commission determine rates in accordance with certain guidelines.4 The most concrete of these, section 3622(b)(3), establishes
the requirement that each class of mail or type of mail service bear (1) the direct and indirect postal costs attributable to that class or type plus (2) that portion of all other costs of the Postal Service reasonably assignable to such class or type.5
The Postal Service’s response to this requirement was questionable at best. It proposed that the Commission “attribute” only 49 percent of the ten billion dollars at issue.6 The remainder, it said, should be “reasonably assigned.” It presented a schedule of such assignments that, it said, had been derived by two of its employees through the use of a formula. The formula, in turn, was *407purportedly composed of three factors: (1) the hypothesized elasticity of demand for each class of mail; (2) the “value” of each class; and (3) the competitive stance of the Postal Service in those cases in which it lacked a legal monopoly.7 And when application of this vague formula threatened to result in great changes from pre-existing rates, it was simply suspended and an alternative substituted.8 The Chief Examiner aptly concluded:
Distributing billions of dollars on the basis of thinly supported judgments is not an acceptable method. And it is an invitation to pressures which Congress sought to avoid.9
The defects in Postal Service’s proposals were not confined to the scheme it applied. The Chief Examiner stated in his opinion that, as to the entire proposal, he had been unable to satisfactorily reconstruct the derivation of these supposedly “reasonable” cost assignments.10 Although he explicitly noted that the two staff members had been forthright witnesses, the Chief Examiner was stern in his criticism of this loose approach to development of rate proposals. Nevertheless, he held that they were adequately justified in view of the circumstances, and he contented himself with a recommendation that the assignment of costs on a “reasonable” basis be reduced in future proposals by a more diligent effort to link long-term and indirect costs to the classes of service that gave rise to them 11
The Postal Rate Commission disagreed with the harshness of the Chief Examiner’s criticism, but its more tolerant view did not extend to the fundamental problem: an unstructured and well-nigh unreviewable discretion in two individuals to propose allocation of over half the Service’s budget. Instead, the Commission pointed to the pragmatic difficulties that faced the staff: a *408novel proceeding, a lack of reliable data, and a limited amount of time. But the Commission concluded with an admission of the accuracy of the Chief Examiner’s criticisms by stating that the Postal Rate Commission would itself undertake a rulemaking proceeding to deal with Postal Service’s deficient accounting and cost assignment techniques.12
The rates are not set by Postal Service staff, of course, but by the Postal Rate Commission, subject to review by the Board of Governors.13 Nevertheless, the Chief Examiner rightly noted that Postal Service staff is in a unique position. It alone takes in the full scope of Postal Service operations when presenting its proposals. And it alone is in a position to influence the Postal Service’s day-to-day accounting procedures and record keeping. Outsider challenges to the fundamental approach Postal Service takes to ratemaking are unlikely to meet with stunning success under these circumstances.14 Yet when this case arose, neither the portion of the Service’s budget subject to “reasonable” allocation, nor the procedures through which the Service prepares its proposals concerning discretionary allocations, were spelled out in statutes or rules.
Section 3622(b)(3) is susceptible of a variety of interpretations, as all parties to this proceeding have recognized.15 But it is important to note as well that Postal Service’s power to propose rates to the Commission was conferred by Congress in the same Act.16 It would certainly be reasonable to assume that Congress meant the Postal Service to structure its own process for preparing such proposals so that there would be at least a rough correspondence between the amount of money it would discretionarily allocate and the care with which it prepared and supported those proposals.
Indeed, Congress may have meant to go further. Its stated intent to purge the postal system of “politics” provides a strong indication that the Chief Examiner was correct when he suggested that discretionary or “reasonable” assignment of costs should apply only where Postal Service simply could not “attribute” costs.17 Under that view, Postal Service could not rectify its errors in this proceeding by merely providing for a more careful “allocation” of the five billion dollars at stake. It would be required to itemize its costs in more detail, determine which classes of service caused them, and attribute those costs solely on that basis. Only very long-term costs and overhead could be “reasonably assigned.”
That question need not be resolved in this case, for the presumptions that surround an initial effort to formulate rates are sufficient to justify the approximations that Postal Service supplied to the Postal Rate Commission here. But, when the Postal Rate Commission establishes guidelines for future rate proposals, it may wish to take a hard look at both the manner in which Postal Service assigns unattributable costs and the amount of costs that it designates “unattributable.” 18

. See S.Rep.No.91-912, 91st Cong., 2d Sess. 11 (1970), U.S.Code Cong. & Admin.News 1970, p. 3649.
Indeed, Congress defined “politics” for the benefit of the regulatory authorities: [I] f postal rates and postal classification are going to be established on a basis of charging whatever the traffic will bear to a particular class of mail according to its ability to pay, or what *406kind of an increase it got last time, or its ‘social acceptability,’ then Congress is clearly better qualified to make such judgments than the Postal Service or any expert commission. Such purely political judgments are the province of Congress.
Id. Although the Chief Examiner took this admonition to heart, the opinion of the Postal Rate Commission itself manifests a disturbing disregard of Congress intention, including the instruction elsewhere in the Senate Report that rates are to be established “on the basis of expert consideration of the overall value of the service provided and the allocation of costs on a scientific or quasi-scientific basis.” Id.
For example, in making some adjustments to the Chief Examiner’s recommendations regarding second-class mail, the Commission said:
The Commission’s recommended rates are designed to meet the statutory requirement to balance costs and revenues. In those instances where our decision reduces the Service’s proposed rates, it is the result of our judgment that the need to establish equitable rates must be balanced with our responsibility to correct existing rate design inequities.
Postal Rate Commission Opinion, Appendix at 1-267.

. See Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968).
I do not, by the reference, mean to imply that future judicial review will take the course followed by later Natural Gas Act cases. See Southern Louisiana Area Rate Cases II, 483 F.2d 880 (5th Cir., 1973).

. The Commission concluded the first part of its opinion with the statement:
In determining thees rates the Commission has accepted the Postal Service’s costing presentation as being appropriate for the present proceeding. However, the Commission intends to institute a rulemaking proceeding for the purpose, among other things, of determining what cost and revenue data should be obtained for use in future proceedings.

. 39 U.S.C. § 3622(b). Technically, the Postal Rate Commission merely renders a “recommended decision.” But, as the Board of Governors observed in its opinion in this case, the power of the Board to revise that opinion is extremely narrow. See 39 U.S.C. § 3625 (1970).

. 39 U.S.C. § 3622(b)(3) (1970) (emphasis and numbering added).

. The Chief Examiner reported that Postal Service’s proposal “attributed” approximately $4.78 billion, and judgmentally distributed $5.06 billion. He observed that this action had 3 primary consequences :
1. The costs for classes of mail do not reflect the full cost burden they impose on the system.
2. By not taking present account of predictable long-run cost variability, the method is increasing future cost and rate instability.
3. By restricting the category of attributable costs, the method enlarges the amount of institutional costs which are distributed to the classes of mail on the basis of Postal Service’s judgmental evaluation of pricing factors instead of on a cost basis.
He could have added that this action makes review of such “judgmental evaluations” rather difficult.

. The Chief Examiner pointed out, inter alia,
No study presented [in evidence] shows that the demand of any class of mail is elastic. It is difficult to estimate what will happen if rates for a class are raised far beyond existing levels because there is no data on the subject.
And, later in the opinion,
In this proceeding Postal Service is proposing to use relative elasticity of demand as a major factor in allocating billions of dollars in institutional costs to the various classes 54 of mail. . . . Not only are the measurements of demand presently too cloudy and unreliable for this purpose, but the economics of Postal Service are such that using this method will probably result in discrimination without justification or benefit.
54. Postal Service tries to avoid this word but that is what it is doing.

. Eor example, the Postal Service did not use elasticity of demand in setting rates for first class mail. It argued that the fact that it has a monopoly over this class, and the fact that the class has an extremely low elasticity of demand, “would lead to first class being assigned a heavier proportion of institutional costs than any other class.” Chief Examiner’s Opinion, Appendix at 1-11. Accordingly, it simply substituted the supposed elasticity of demand for the highest of the other classes. Id.
Despite this adjustment, however, the Chief Examiner found that Postal Service’s distribution of institutional costs “favor second and third-class to the detriment of first-class.” Id. at 1-16.

. Id. at 1-17. Providing specific cases in which theory failed to appear in practice, the Chief Examiner examined the factor “value of the mail to the recipient” and reported:
Here, Postal Service becomes involved in social considerations and subjective evaluations which are difficult to apply. Eor example, Postal Service finds that the contents of second-class mail have a high value because of their “cultural, educational and informations values”, which justify a low price. . . . But as has been noted Postal Service deems the contents of first-class to have a high value which warrants a high price.
Id. at 1-14.

. [B]ecause the process is largely subjective, it is impossible to determine which factors — or the extent to which various factors — guided Postal Service in its distribution of institutional costs. As a consequence, one cannot replicate Postal Service’s methods to test their procedures, weightings, or merits.
Id. at 1-16.

. Id. at 1-17.

. See note 3 supra.

. See note 4 supra.

. Indeed, the Chief Examiner himself felt sufficiently constrained that he began his rate recommendations with the statement :
Only the minimum necessary changes will be adopted in the specific rates proposed by Postal Service because the record in this case does not permit the determination of rates on what should be the proper basis.
Chief Examiner’s Opinion, Appendix at 1-17.

. Id. at 1-7; Postal Rate Commission Opinion, Appendix at 1-276-80.

. See 39 U.S.C. § 3622(a) (1970).

. More precisely, lie quoted section 3622 (b) (3) and stated “The paragraph as a whole suggests that assignment of costs was to be carried out as far as it reasonably could be.” Chief Examiner’s Opinion, Appendix at 1-9 (emphasis added).

. The Commission would be well advised in this undertaking to begin with the excellent opinion of Chief Examiner Seymour Wenner. See note 1 supra.