Court Opinion

ID: 184914
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:25:37+00
Date Added: 2024-06-11T17:26:11.820826
License: Public Domain

United States Court of Appeals

               FOR THE DISTRICT OF COLUMBIA CIRCUIT

       Argued April 14, 1999        Decided July 23, 1999 

                           No. 98-1310

                            "Complex"

                  United Parcel Service, Inc., 
                            Petitioner

                                v.

                  United States Postal Service, 
                            Respondent

             Alliance of Nonprofit Mailers, et al., 
                           Intervenors

                                 

                                 

                                 

                           No. 98-1320

                Alliance of Nonprofit Mailers and 
           Coalition of Religious Press Associations, 
                           Petitioners

                                v.

                  United States Postal Service, 
                            Respondent

                  United Parcel Service, Inc., 
                            Intervenor

                           No. 98-1336

                   Niagara Telephone Company, 
                            Petitioner

                                v.

                  United States Postal Service, 
                            Respondent

           On Petitions for Review of an Order of the 
                   United States Postal Service

     David M. Levy argued the cause for the Alliance of Non-
profit Mailers and Coalition of Religious Press Associations.

     John E. McKeever argued the cause for United Parcel 
Service, Inc.

     Timothy E. Welch argued the cause for Niagara Telephone 
Company.

     Daniel J. Foucheaux, Jr., Counsel, United States Postal 
Service, argued the cause for the United States Postal Ser-
vice.  Eric P. Koetting and Scott L. Reiter, Attorneys, United 
States Postal Service, were on brief.

     Dana T. Ackerly, II, John M. Burzio, Thomas W. 
McLaughlin, Ian Volner, David C. Todd, Timothy J. May 
and Mark L. Pelesh were on brief for the Advertising Mail 
Marketing Association, et al.  David L. Meyer, N. Frank 
Wiggins and Jeffrey J. Lopez entered appearances.

     William J. Olson and John S. Miles were on brief for the 
Association of Priority Mail Users, Inc., et al.

     Before:  Ginsburg, Henderson and Rogers, Circuit Judges.

             Opinion for the Court filed Per Curiam.

     Per Curiam:  The petitioners raise five challenges to the 
May 11, 1998 Opinion and Recommended Decision of the 
United States Postal Rate Commission (Commission), as ap-
proved by the United State Postal Service Board of Gover-
nors (Governors) on June 29, 1998.  For the reasons set out 
below, we reject each of the challenges and deny the petitions 
for review.

                          I. Background

     Under the Postal Reorganization Act (Act), "the Governors 
are authorized to establish reasonable and equitable classes of 
mail and reasonable and equitable rates of postage and fees 
for postal services" subject to the over-all "break even" 
limitation that "[p]ostal rates and fees shall provide sufficient 
revenues so that the total estimated income and appropria-
tions to the Postal Service will equal as nearly as practicable 
total estimated costs of the Postal Service."  39 U.S.C. s 3621 
(1994). The United States Postal Service (Postal Service, 
Service or USPS) initiates a ratemaking proceeding by re-
questing that the Commission "submit a recommended deci-
sion on changes in a rate or rates of postage or in a fee or 
fees for postal services."  Id. s 3622(a).

     The Commission is then required to

     make a recommended decision on the request for 
     changes in rates or fees in each class of mail or type of 
     service in accordance with the policies of this title and 
     the following factors:
     
          (1) the establishment and maintenance of a fair and 
          equitable schedule;
          (2) the value of the mail service actually provided each 
          class or type of mail service to both the sender and the 
          recipient, including but not limited to the collection, 
          mode of transportation, and priority of delivery;         
          (3) the requirement that each class of mail or type of 
          mail service bear the direct and indirect postal costs 
          attributable to that class or type plus that portion of all 
          other costs of the Postal Service reasonably assignable 
          to such class or type;
          (4) the effect of rate increases upon the general public, 
          business mail users, and enterprises in the private 
          sector of the economy engaged in the delivery of mail 
          matter other than letters;
          
          (5) the available alternative means of sending and 
          receiving letters and other mail matter at reasonable 
          costs;
          
          (6) the degree of preparation of mail for delivery into 
          the postal system performed by the mailer and its 
          effect upon reducing costs to the Postal Service;
          
          (7) simplicity of structure for the entire schedule and 
          simple, identifiable relationships between the rates or 
          fees charged the various classes of mail for postal 
          services;
          
          (8) the educational, cultural, scientific, and informa-
          tional value to the recipient of mail matter;  and
          
          (9) such other factors as the Commission deems appro-
          priate.
          
Id. s 3622(b).

     The Commission has construed section 3622(b) to establish 
a "two-tier approach to allocating the Postal Service's total 
revenue requirement" under which the Commission "first 

must determine the costs caused by ('attributable to') each 
class of mail, s 3622(b)(3), and on that basis establish a rate 
floor for each class" (the "attributable" costs) and "then must 
'reasonably assign,' see s 3622(b)(3), the remaining costs to 
the various classes of mail on the basis of the other factors set 
forth in s 3622(b)" (the "institutional" costs).  National Ass'n 
of Greeting Card Publishers v. USPS, 462 U.S. 810, 814-15 
(1983).  The Commission then issues its recommended deci-
sion setting rates in accordance with the combined attribut-
able and institutional costs for each class of mail and with the 
statutory mandate that the Postal Service's rates and fees 
"equal as nearly as practicable total estimated costs of the 
Postal Service," 39 U.S.C. s 3621 (1994).  Upon receiving the 
Commission's decision, the Governors "may approve, allow 
under protest, reject, or modify that decision."  Id. 
s 3625(a).1

     The Commission issued its Opinion and Recommended 
Decision allocating attributable and institutional costs for 
each class of mail on May 11, 1998 (PRC Op. R97-1).  See 
Joint Appendix (JA) vol. ii.  On June 29, 1998 the Governors 
issued their decision accepting the Commission's rates with 
"minimal exceptions."  See JA vol. i. 708.  We address below 
the petitioners' challenges to the Commission's decision as 
accepted by the Governors.

                          II. DISCUSSION

     As noted above, the petitioners challenge the Commission's 
ratemaking decision on five grounds.  We examine each 
ground separately.

                   A. The Overall Rate Increase

                                1.

     During the three years (1995-1997) since its last rate 
increase in Docket No. R94-1, the Postal Service has experi-
enced revenue surpluses after decades of deficits.  The Ser-
vice feared, however, that its net income would be insufficient 

__________
     1 For a more detailed exegesis of the statutory scheme, see Mail 
Order Ass'n of Am. v. USPS, 2 F.3d 408, 413-16 (D.C. Cir. 1993).

to cover planned increases in capital spending on several 
management-initiated projects designed to improve the Postal 
Service's performance and infrastructure.  The Service ini-
tially estimated that its total revenue requirement for Fiscal 
Year 1998 would be $61.6 billion, including $60.564 billion in 
incurred costs, $605.6 million for a one-percent contingency 
fund, and $446.9 million to recover one-ninth of the Service's 
$4.022 billion in accumulated debt.  On this basis, it projected 
that it would need over $2.4 billion in additional revenue.  
The Service filed its request with the Commission in July 
1997, based on data from FY 1996, using 1998 as a "test 
year"--a year that is to be "representative of the period for 
which the proposed rates are to be in effect."  PRC Op. 
R97-1 at 12;  see also 39 C.F.R. s 3001.54(f)(2) (1998).

     While the request was pending before the Commission, 
subsequent data indicated that the Postal Service's original 
revenue estimates had been overly pessimistic.  For example, 
although it had initially projected a surplus of only $636 
million for 1997, in fact the Service received a net income of 
$1.264 billion.  In addition, although it originally projected a 
$1.4 billion shortfall in revenues for FY 1998,2 in the first 
seven accounting periods of FY 1998, the Service received a 
$1.36 billion net income and would have to lose $2.6 billion 
over the remainder of the year to experience the initial 
estimated losses.  As a result of these discrepancies, the 
Commission took the apparently unusual step of asking the 
Governors to provide updated estimates for FY 1998 based on 
1997 actual results;  although this request would delay the 
proceeding, the Commission observed that "no pressing need 
for new rates" existed at the time.  The Governors declined 
the Commission's request, rejecting an extension of the ten-
month deadline and stating that they did not wish to "com-
ment ... on the state of the evidentiary record" and that the 
Governors could use their discretion as to the timing of 
implementing rates "to provide for the best transition to new 
rates."

__________
     2 The Commission later identified this figure as $1.2 billion, 
without explaining the discrepancy.

     After it became apparent that its original revenue esti-
mates were overly pessimistic, the Postal Service reported to 
the Commission that it would face more costs than it had 
initially predicted.  Specifically, it requested a new contingen-
cy figure of 1.5% instead of 1%, noting that in prior years the 
figure had been as high a 3.5%.  In addition, the Service 
predicted that it would need $300 million more than it had 
initially requested for discretionary programs, such as auto-
mated data processing.  The Commission rejected what it 
viewed as attempts to avoid the full impact of the Service's 
bright economic situation, labeling the new 1.5% contingency 
number "a plug figure" used by the Service to counterbalance 
the decrease in the size of its contingency fund in light of 
1997's actual data.  Further, the Commission dismissed as 
"speculative" the Postal Service's claims that it would spend 
even more money than it had initially projected in FY 1998, 
even though it continued "to spend significantly less than its 
rate case forecasts" during the first half of the test year.  
The Commission pointed to a Postal Service document--
inadvertently included as evidence and initially disavowed by 
the Service as inauthentic--that identified the Service's up-
dating "strategy" as "provid[ing] updated information on cost 
increases to offset the decreases" resulting from 1997's actual 
figures.  The Commission found that although the document 
"may not demonstrate an intent to mislead....  it indicates 
that the Service was looking for potential cost increases."

     The Commission therefore rejected the Service's effort to 
increase its original estimate by $362 million.  As to the 
initial spending program estimates, however, the Commission 
observed that, despite having "serious doubts about the Post-
al Service's forecasts in the area of other programs expense, 
... [the Commission] does not scrutinize the wisdom of 
Postal Service spending plans."  Lacking sufficient grounds 
to reduce this initial estimate of other programs expenses, the 
Commission reasoned that, "[w]hile a proportional amount of 
spending has not occurred in the first half of the test year, no 
party has presented evidence suggesting that the Postal 
Service will not spend funds for any particular program 
during the remainder of 1998."  It rejected, however, the 

Postal Service's position that "it does not matter when the 
money is spent because it will eventually be spent," on the 
ground that it was "antithetical to the test year ratemaking 
process."

     In revising the revenue request, the Commission observed 
that it could "not estimate the degree to which the error in 
forecasting 1997 results will continue into the test year, 
primarily because it lacks the Cost and Revenue Analysis for 
1997 (CRA)," after the Governors declined to delay the 
proceedings to allow time for final FY 1997 data to be 
compiled.  It did, however, adjust the Postal Service's origi-
nal request based on the 1997 figures it had, with reductions 
for corrections provided by the Postal Service ($67 million), a 
cost-of-living adjustment ($511.1 million, the largest single 
change), and corrections for cost reduction and other pro-
grams estimates ($101 million).3  It retained the 1% contin-
gency figure and, in keeping with the Postal Service's nine-
year amortization plan, it reduced by $69.9 million the amount 
the Service could ascribe to prior year losses, or "one ninth of 
the difference between actual and estimated 1997 profits."  
The Commission noted that "[t]he nine year amortization 
period is standard, having been used in Docket Nos. R80-1, 
R84-1, R87-1, R90-1, and R94-1," and that "[t]he Service 
still believes it is appropriate."  These figures, combined with 
attribution and miscellaneous adjustments adding $4 million 
to the total revenue requirement, led the Commission to 
reduce the proposed rate increase by approximately $745 
million.

     At the same time, in light of the break-even requirement, 
39 U.S.C. s 3621, the Commission urged the Governors to 
delay implementing the new rates "until additional revenues 
are needed to offset actual (as opposed to planned) expendi-
tures."  In sum, despite the recent surpluses, the Commission 

__________
     3 The Governors criticized this last decrease of "assumed supervi-
sor cost savings" as "based on one party's unsupported speculations 
that such costs were overlooked."  Despite this complaint, the 
Governors elected not to challenge this reduction;  nor do the 
petitioners raise it as an issue.

approved an increase of $1.6 billion in overall rates on the 
ground that these changes "will provide added funds to 
enable the Postal Service to proceed with its plans to spend 
$5.6 billion on equipment and service enhancement programs 
in the 1998 fiscal year."4

     A month later, the Governors adopted most of the Commis-
sion's recommendations.  See 39 U.S.C. s 3625.  In their 
view, "[t]he revenue requirement was driven in large part by 
the need to fund specific management initiatives and pro-
grams, many of which have been approved by the Board of 
Governors to maintain and improve service for the public, as 
well as by the usual need to cover expenses and repay prior 
years' losses."  At the same time, they acknowledged that in 
FY 1998 they expected a gain in net income.  Although 
criticizing the Commission's rejection of certain costs and the 
1.5% contingency figure, the Governors accepted the revenue 
requirement portion of the Commission's decision.  They 
added, however, that, under their Resolution No. 95-9,5 the 
Postal Service could recover for prior years' losses

     at a more rapid rate, if possible, than that based on the 
     amount included in the revenue requirement.  Continued 
     surpluses above and beyond those anticipated will allow 
     for the complete restoration of equity in the near future, 
     obviating the need to include this provision in subsequent 
     revenue requirements, and thus relieving the ratepayers 
     of a burden they have carried for many years.
     
Finally, in light of comments by mail customers to the 
Governors and the Commission's request of a delay, the 
Governors postponed implementing the rate changes until 
January 10, 1999.  Among the factors influencing the delay 
were the Service's current financial situation, as reflected in 
the annual report for FY 1997 and reported expectations for 

__________
     4 This spending increase represented the first portion of a five-
year plan to invest $17 billion in the Postal Service's operations.

     5 Resolution 95-9, a policy statement by the Governors, provides 
that the "Postal Service will plan for cumulative net income ... to 
equal or exceed the cumulative prior years' loss recovery target."

FY 1998, and the fact that January marked the four-year 
anniversary of the last general rate increase.  The Governors 
also concluded that applying the increase in January was 
"consistent with the Postal Service's goal for equity restora-
tion through FY 1998, in accordance with Resolution No. 95-9 
and the Commission's recommendation for the recovery of 
prior years' losses."

                                2.

     In 1970, Congress enacted the "break even" requirement, 
see 39 U.S.C. s 3621, as part of the Postal Reorganization 
Act, Pub. L. No. 91-375, s 3621, 84 Stat. 719, 760 (1970) 
(codified as amended at 39 U.S.C. s 101, et seq. (1994)), 
following years of deficits by the then-Post Office Depart-
ment.  See National Ass'n of Greeting Card Publishers v. 
USPS, 607 F.2d 392, 425 (D.C. Cir. 1979) (NAGCP III);  see 
also H.R. Rep. No. 91-988 at 3, 6, 13 (1970).  The House 
Committee on Post Office and Civil Service explained that 
"the 'break-even' requirement of H.R. 17070 represents a 
commitment that the Postal Service no longer rely on massive 
annual infusions of general revenues of the Treasury at the 
taxpayers' expense."  H.R. Rep. No. 91-1104 at 17 (1970);  
see also H.R. Rep. No. 91-988 at 13.  Even so, that version of 
the bill did not contemplate the Postal Service becoming 
"self-sustaining--[i.e.] eliminating the postal deficit"--until 
January, 1978.  H.R. Rep. No. 91-1104 at 10. The final 
version of the legislation, however, replaced the 1978 target 
date with a requirement that "revenue from rates and fees, 
plus annual appropriations for public service, debt service, 
and revenue foregone should cover full costs."  H.R. Rep. No. 
91-1363 at 87 (1970) (conference report).

     Despite the restructuring of the postal system, however, 
the Service continued to operate budget deficits in all but 
nine of the 26 years from 1971, when it became an indepen-
dent agency, to 1997.  See PRC Op. R97-1, at i, 11;  Postal 
Rate Commission, Opinion & Recommended Decision, Docket 
No. R94-1, at II-24 to II-26 (1994) ("PRC Op. R94-1");  see 
also NAGCP III, 607 F.2d at 425, 431.  As the Commission 
observed in the 1994 rate case, "[w]hile reorganization led to 

improvements in the cumulative deficit trend, it has not lived 
up to the expectations of break-even operations."  PRC Op. 
R94-1 at II-34.  This problem began to change in the three 
years following the 1994 rate case when the Service experi-
enced "unprecedented operating surpluses totaling $4.6 bil-
lion."  PRC Op. R97-1 at i.

     The Service's improved fortunes, however, lie at the heart 
of the Alliance's challenge to the overall rate increase.  The 
Alliance contends that the Governors' decision flies in the face 
of evidence that the Service was operating at a surplus at the 
time the Governors approved the Commission's recommended 
rate increase and therefore the Governors' decision violated 
the "break-even" requirement of s 3621.  The Service re-
sponds that the Commission (and therefore the Governors, 
who adopted the Commission's recommendation) carefully 
considered its request, reducing the proposed increase when 
new data became available, and that "[n]o party filed factual 
evidence controverting the Postal Service's revenue require-
ment presentation."

     The plain language of s 3621, that total estimated income 
and expenses be "equal as nearly as practicable," suggests 
that Congress did not contemplate the break-even provision 
to require a strict dollar-for-dollar match when the Service 
presents its budget proposal to the Commission.  The legisla-
tive history also recognizes that income and costs could be 
"approximately in balance" and that the Commission should 
recommend a decision balancing the two "as nearly as possi-
ble."  S. Rep. No. 91-912, at 14-15 (1970).  The Senate 
Committee on Post Office and Civil Services reported that the 
Governors were to notify the Commission if estimated costs 
and estimated income were "significantly different," at which 
time they were to request a change in the rate structure.  Id. 
at 14.

     The statutory language and the legislative history recog-
nize that ratemaking inherently involves some degree of 
imprecision and, as this court has previously observed, it is 
not an exact science.  See Association of Am. Publishers v. 
Governors of the USPS, 485 F.2d 768, 773 (D.C. Cir. 1973).  

The Service makes projections about its costs and revenue 
that may or may not come to pass;  projections are no more 
than educated guesses.  The use of projections for future 
costs and revenues necessarily will involve some imprecision 
when actual data becomes available.  Of course, the Service 
must make its estimates in good faith.  In addition, the 
Commission has a duty to evaluate the Service's proposal 
independently.  See Mail Order Ass'n of Am. v. USPS, 2 
F.3d 408, 422 (D.C. Cir. 1993).  Nevertheless, the Postal 
Service's request for a rate change "shapes the Commission's 
power to recommend."  Dow Jones & Co. v. USPS, 110 F.3d 
80, 83 (D.C. Cir. 1997).

     The Alliance's challenge focuses, therefore, on the Postal 
Service's estimate of its costs, noting that even the Commis-
sion expressed some doubts as to whether the Postal Service 
would spend all of the money in the test year that it initially 
projected.  The court has previously rejected efforts to define 
the term "cost" under s 3621 too restrictively, lest we "clamp 
the shackles of a narrow rule onto the Postmaster General's 
attempt to return the Postal Service to financial stability."  
NAGCP III, 607 F.2d at 428.  Although the Service is not 
free to define "total estimated costs" so broadly as to make 
the term meaningless, the court accepts the Service's deter-
mination as to costs "unless it lies outside the range of 
permissible choices contemplated by the statute."  Id. at 430 
(quoting Hardin v. Kentucky Utilities Co., 390 U.S. 1, 8 
(1968)).  As the Supreme Court observed in New York v. 
United States, 331 U.S. 284, 328 (1947), "[t]he appraisal of 
cost figures is itself a task for experts, since these costs 
involve many estimates and assumptions and, unlike a prob-
lem in calculus, cannot be proved right or wrong.  They are, 
indeed, only guides to judgment."  The Alliance does not 
challenge the type of expenses the Service proposes to count 
as costs, but only the amount of those expenses.

     In reviewing the record, the court must determine whether 
there was substantial evidence for the Commission to rely on 
the Service's original cost estimates in calculating the revenue 
required for the Service to break even.  See 5 U.S.C. 
s 706(2)(E) (1994);  Mail Order Ass'n, 2 F.3d at 420.  Such 

evidence need not be "overwhelming," and the agency "must 
have latitude to draw permissible inferences from ... the 
record."  Mail Order Ass'n, 2 F.3d at 421.  Here, the Com-
mission noted, first, that the need for a revenue increase 
arose from the Service's plans to increase capital spending to 
$2.5 billion on ambitious management-initiated programs to 
improve customer service.  When data became available indi-
cating that the Service's financial performance was better 
than expected in 1997, the Commission adjusted the Service's 
revenue requirements, while noting that the factors causing 
1997's stellar performance might not continue into the test 
year.  It also rejected the Service's claim that its costs would 
be even greater than it had initially projected.  Thus, the 
Commission did not, as the Alliance suggests, set rates with-
out regard to actual data.  By contrast, in West Ohio Gas v. 
Public Utilities Comm'n of Ohio, 294 U.S. 79 (1935), the 
agency "shut [its] eyes" when presented with actual revenue 
figures for 1930 and 1931, instead relying on estimates based 
on 1929 data.  Id. at 81.  Here, the Commission adjusted its 
figures as new data became available and was not required to 
delay indefinitely the ratemaking process until all 1997 data 
had been compiled, particularly in light of its statutory obli-
gation to make its recommendation within 10 months.  See 39 
U.S.C. s 3624(a), (c)(1).

     Second, although expressing doubts about whether the 
Service could actually spend all the money it initially planned 
for during the test year, the Commission found that it had no 
basis to reduce this estimate, observing that its role was not 
to pass judgment on the wisdom of the Service's proposed 
spending.  See Governors of USPS v. United States Postal 
Rate Comm'n, 654 F.2d 108, 115 (D.C. Cir. 1981).  The 
Service offered evidence that it had plans in place to make 
sure its managers timely spent these funds, and it noted that 
a number of contracts had already been signed.  The Alliance 
does not seek disallowance of any specific expenditure.  Al-
though the Alliance challenges the Service's claim that it 
would in fact spend the millions of dollars during the test 
year, reversing early fiscal year performance, it provided no 
evidence that such spending would not occur.  The Commis-

sion could reasonably presume, therefore, that the Service's 
initial estimates and managerial efforts reflected a good faith 
forecast of its spending needs.6  See FTC v. Owens-Corning 
Fiberglas Corp., 626 F.2d 966, 975 (D.C. Cir. 1980);  cf. West 
Ohio Gas v. Public Utilities Comm'n of Ohio, 294 U.S. 63, 72 
(1935).

     Because we conclude that the Commission's recommended 
decision to approve a revenue increase was "based on such 
relevant evidence as a reasonable mind might accept as 
adequate to support [the] conclusion" that the Service would 
spend its initial estimates on new programs during the test 
year, making the rate increase necessary, see Mail Order 
Ass'n, 2 F.3d at 420 (citations and internal quotation marks 
omitted), we affirm the Governors' decision.  The Governors 
could reasonably rely on the Commission's conclusions.  Al-
though the Service's failure in the early part of the fiscal year 
to keep pace with its initial spending projections might sug-
gest an inability to meet its spending targets for the remain-
der of the test year, this is not the only conclusion reasonably 
to be drawn from the evidence.  Reviewing courts "may not 
overturn an agency finding simply because evidence existed 
supporting an alternative finding."  Direct Marketing Ass'n 
v. USPS, 778 F.2d 96, 108 (2d Cir. 1985) (quoting Newsweek, 
Inc. v. USPS, 663 F.2d 1186, 1210 (2d Cir. 1981)).  The 
Service's witnesses testified, and the Commission accepted, 
that a number of contracts for such spending had been signed 
and that the Service was taking steps to ensure that manag-
ers would be accountable for spending the money in their 
budgets on the new programs.7  These programs were consis-

__________
     6 Although the Alliance makes much of the fact that the Postal 
Service earned a $550 million net income during FY 1998 and $611 
million during the first four months of FY 1999, these figures were 
not available to the Commission and the Governors when they made 
their respective decisions.  See 39 U.S.C. s 3628 (1994);  see also 
Commercial Drapery Contractors, Inc. v. United States, 133 F.3d 1, 
7 (D.C. Cir. 1998);  Direct Marketing Ass'n v. USPS, 778 F.2d 96, 
109 (2d Cir. 1985).

     7 The Alliance is therefore mistaken when it contends that the 
Service is engaging in post hoc rationalization by suggesting that 

tent with the Service's obligation to maintain and develop the 
postal system and to improve its service to customers.  See 
generally 39 U.S.C. s 3621.  The Alliance's requested relief, 
complete "disallowance of the proposed rate increases in their 
entirety," would seriously interfere with the Governors' deter-
mination that additional funds were needed to improve ser-
vice, and hence the Commission could reasonably reject its 
request.  We also reject the notion that the Postal Service 
could implement rates only once its profits were exhausted:  
the Service can rely on the test-year estimates, so long as the 
Commission has substantial evidence with which to support 
those calculations.  See Mail Order Ass'n, 2 F.3d at 420.

     In light of the inherent mismatch that can occur when 
using a test year and estimates to project revenue require-
ments, the Commission necessarily faces the prospect that 
some of the data initially provided to it by the Service may 
later prove to be inaccurate.  The Commission considered the 
data before it, rejected the Service's late-breaking spending 
increase projections, and reduced the initial estimates based 
on what data it had.  Although the Commission requested a 
three-month delay to allow time for the submission of updates 
to its FY 1997 data, once the Governors rejected this request, 
the Commission was within its discretion to proceed based on 
the evidence before it and to decline to reopen the record and 
thereby endanger its statutory obligation to complete the rate 
proceeding within ten months.  See 39 U.S.C. s 3624(c)(1);  
see also Direct Marketing Ass'n, 778 F.2d at 107 (citing City 
of San Antonio v. Civil Aeronautics Bd., 374 F.2d 326, 329 
(D.C. Cir. 1967)).  The Alliance acknowledges that the record 
before the Commission need not be "continually" updated to 
reflect the latest, most accurate data.  Indeed, in enacting the 
Postal Reorganization Act, Congress was concerned that 
"protracted disputes over rates and classifications not block 
the adequate flow of revenues to the Postal Service."  Mail 
Order Ass'n, 2 F.3d at 419 (citing H.R. Rep. No. 91-1104 at 
19).

__________
the delays in spending at the beginning of the fiscal year were only 
temporary.  See SEC v. Chenery Corp., 332 U.S. 194, 196 (1947).

     The Alliance contends, however, that whatever evidence 
was before the Commission, the Governors in effect admitted 
that a rate increase in FY 1998 would violate the break-even 
provision when they stated in their decision adopting the 
Commission's recommendation a month later that "[i]n FY 
1998, the Board once again expects the Postal Service to gain 
a net income."  This statement, divorced from any specific 
data in the record to support it, is somewhat ambiguous, in 
that it indicates nothing about the size of the expected 
surplus or whether it would be more than the $19 million 
surplus projected by the Commission for 1998 if the new 
rates were implemented.  Furthermore, the Governors made 
this observation in the context of explaining why they were 
delaying implementation of the rates until January 1999.  
Hence, the statement is hardly a precise calculation of the 
Service's revenue requirements based on evidence in the 
record.8

                   B. Nonprofit Standard A Mail

     The Alliance also challenges the Postal Service's increased 
rate for "nonprofit Standard A mail,"9 arguing that the Ser-

__________
     8 The Commission urged the Governors to delay implementing 
the rates until the new revenues were actually needed "to offset 
actual (as opposed to planned) expenditures."  The Commission did 
not, however, condition its recommendation of the rates upon the 
Board's acceptance of a delay.  Had the Commission required the 
Service to delay rates until January, it would be making rates on 
the basis of something other than the test year, in that it would be 
acknowledging that the Service could not spend all the money it 
proposed during the test year.  Although the decision when to start 
new rates is within the Governors' discretion, see Mail Order Ass'n, 
2 F.3d at 419-20;  see also 39 U.S.C. s 3625(f), we do not reach the 
separate inquiry of whether the Commission could approve an 
increase contingent upon the Governors' delaying its implementa-
tion until actual spending needs arise.

     9 The Alliance describes this subclass as "the primary medium for 
nonprofit organizations to raise funds and disseminate information."  
Commercial Standard A mail, in contrast, is "the primary subclass 
for commercial bulk advertising mail."

vice improperly allocated costs.  The Postal Service initially 
proposed a rate increase of 11.3% for nonprofit Standard A 
mail.  Before the Commission, however, the Alliance's wit-
ness, John Haldi, came forward with evidence that part of the 
increase in nonprofit costs resulted from a "mismatch" be-
tween two Postal Service methods for tracking nonprofit mail.  
Specifically, Haldi testified that volume data collected through 
the Revenue-Piece-Weight ("RPW") system might be out-of-
synch with cost data measured through the In Office Cost 
System ("IOCS"), leading to the costs of nonprofit mail being 
overstated.  Due to changes in nonprofit mail eligibility re-
quirements, some mail "bearing nonprofit indicia of postage" 
were "entered at commercial rates or later charged back 
postage based on commercial rates."  Haldi estimated that 
7.85% of mail with nonprofit markings paid commercial rates 
and that therefore 7.85% of total attributable costs for Stan-
dard A nonprofit mail should shift to commercial mail.

     The Postal Service's rebuttal study challenged Haldi's find-
ings.  The Service conceded that the mismatch documented 
by Haldi was possible, but it found that only 0.061% of 
commercial mail had nonprofit indicia, with a net effect that 
only $400,000, or 0.18%, of nonprofit costs should be assigned 
to commercial costs.  Given the small figure, the Postal 
Service argued that no adjustment was necessary.

     The Commission found that both surveys "are significantly 
flawed and may not be relied upon for quantitative assess-
ment."  For example, one third of the responses in the Haldi 
study came from one organization, the American Association 
of Museums, while the Postal Service's study relied extensive-
ly upon the memories of its employees. A problem clearly 
existed--"that some nonprofit mail may be correctly reported 
in the RPW system as commercial mail, but recorded as 
nonprofit in the IOCS system."  But the Commission conclud-
ed that quantifying this problem presented a "greater chal-
lenge," and in the end determined "[a]fter examination of the 
record evidence, including nonprofit mail volume, the Com-
mission estimates that one percent of total nonprofit attribut-
able costs should have been associated with Standard A 
commercial mail."  The resulting rate recommended for Stan-

dard A Nonprofit Mail was an increase of 9.6%, which the 
Governors adopted.

     On appeal, the Alliance contends that the rate increase for 
Nonprofit Standard A mail violates the requirements of 
s 3626(a)(3), which provides that rates for this category of 
mail include the "estimated costs attributable" to it plus an 
additional markup, which for FY 1998 equaled 5/12 of the 
commercial subclass markup.10  See 39 U.S.C. 
s 3626(a)(3)(A)-(B) (1994).  The statute defines "costs attrib-
utable" as "the direct and indirect postal costs attributable to 
such class of mail or kind of mailer (excluding any other costs 
of the Postal Service)."  Id. s 3626(a)(2)(A).  This language 
parallels s 3622(b)(3), which requires "that each class of mail 
or type of mail service bear the direct and indirect postal 
costs attributable to that class or type plus that portion of all 
other costs of the Postal Service reasonably assignable to 
such class or type."  In the Alliance's view, because the cost 
data used to create the nonprofit rate was "corrupted," and 
the Postal Service had failed to provide sufficient evidence on 
the extent of cost-shifting, the Commission had to reject the 
rate increase or toll the deadline until the Postal Service 
provided better data.11  Selecting the one-percent figure as a 

__________
     10 In 1993 Congress passed the Revenue Forgone Reform Act, as 
part of the larger Treasury, Postal Service, and General Govern-
ment Appropriations Act, 1994, Pub. L. No. 103-123, 107 Stat. 1226, 
ss 701-708 (1993).  This statute amended 39 U.S.C. s 3626(a), 
phasing in a series of mark-ups based on year.  See 107 Stat. at 
1268.  For fiscal years after 1998, the rate for nonprofit Standard A 
mail was to "reflect one-half the markup of the comparable commer-
cial subclass."  PRC Op. 97-1, at 458;  see also 39 U.S.C. 
s 3626(a)(3)(B)(ii)(VI).

     11 For support of this proposed delay, the Alliance cites 39 U.S.C. 
s 3624(c)(2), which permits the Commission to extend the 10-month 
deadline by one day for each day that the Postal Service has 
unreasonably delayed a response to a lawful order by the Commis-
sion.  The Postal Service responds that at no time did it fail to 
comply with a specific Commission order.  The Alliance contends, 
however, that the Postal Service's failure "to provide adequate 
documentation of the costs attributed to nonprofit Standard (A) 

compromise number between the competing parties' esti-
mates did not constitute, the Alliance contends, reasoned 
decision-making.

     In examining the Commission's decision, context is signifi-
cant.  The Commission viewed the Service's proposed request 
to be "the most technically complex" rate case ever presented 
to it.  See PRC Op. R.97-1 at iii.  Yet the statute required 
the Commission to make its recommendations on the Ser-
vice's request "no later than 10 months after receiving" it.  39 
U.S.C. s 3624(a), (c)(1).  To reach that point, the Commission 
first had to conduct hearings to allow the Service, mail users, 
and a Commission officer appointed to represent the general 
public the opportunity to comment on the Service's request.  
Id. s 3624(a).  Congress required that the Commission reach 
its decision promptly in recognition that "the Postal Service is 
a labor-intensive organization," S. Rep. No. 91-912, at 16, 
which needed sufficient income to operate efficiently, see H. 
Rep. 1104 at 19, and therefore Congress implicitly anticipated 
that the Commission would have to make its recommenda-
tions based on the data that might suffer from analytical 
flaws or, with time, prove inaccurate.

     Consequently, although the Commission has an obligation 
to explain its reasoning and to support its position with 
substantial evidence, see Mail Order Ass'n, 2 F.3d at 420;  
Direct Marketing Ass'n, 778 F.2d at 100, it will not always be 
possible for it to provide an extended explanation of every 
issue addressed in its recommendation, particularly an issue 
raised relatively late in the proceedings.  So viewed, the 
Commission's decision is sufficient if the court can discern the 

__________
mail" violated the Service's obligation to provide complete documen-
tation on cost attribution for individual classes of mail.  Reply Br. 
at 15 n.7 (citing 39 C.F.R. s 3001.54(b)).  Despite the Alliance's 
assertions, the statute provides that the delay may be imposed 
when "the Commission determines that the Postal Service has 
unreasonably delayed consideration."  See 39 U.S.C. s 3624(c)(2) 
(emphasis added).  Although the Commission was critical of the 
Service's failure to "expend significant efforts to evaluate the mat-
ter until after [being] directed ... to do so," the Commission made 
no such determination on this issue.

path that the Commission followed in reaching its one-percent 
figure.  See Motor Vehicle Mfrs. Ass'n of the United States v. 
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) 
(quoting Bowman Transp., Inc. v. Arkansas-Best Freight 
Sys., Inc., 419 U.S. 281, 286 (1974));  see also Greater Boston 
Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970).

     The Supreme Court has cautioned, moreover, that "[a]lloca-
tion of costs is not a matter for the slide-rule.  It involves 
judgment on a myriad of facts.  It has no claim to an exact 
science."  National Ass'n of Greeting Card Publishers, 462 
U.S. at 825 (quoting Colorado Interstate Co. v. FPC, 324 U.S. 
581, 589 (1945)).  Discussing postal rate cost allocation in the 
context of s 3622(b)(3), the Court observed that "Congress 
did not dictate a specific method for identifying causal rela-
tionships between costs and classes of mail" and that the 
Commission's interpretation of the statute, including the 
method to choose to comply with s 3622(b)(3), was due defer-
ence.  Id. at 826.  The Court upheld the Commission's con-
struction of the Postal Reorganization Act as establishing a 
"two-tier ratesetting structure" to allocate costs, first identi-
fying "all costs that in the judgment of the Rate Commission 
are the consequence of providing a particular class of service" 
and second "assign[ing] remaining costs reasonably on the 
basis of the other eight factors set forth by s 3622(b)." Id. at 
833-34.  The Court concluded that "[t]he statute requires 
attribution of any cost for which the source can be identified, 
but leaves it to the Commissioners, in the first instance, to 
decide which methods provide reasonable assurance that 
costs are the result of providing one class of service."  Id. at 
833.

     When an agency does not "entirely disregard two experts, 
but [finds] each somewhat in error," the court has permitted 
the agency to take "as its own solution a point somewhere 
between the two expert figures.  When neither of two sug-
gested adjustments applied to inaccurate data is completely 
satisfactory a rate-making body may fashion its own adjust-
ments within reasonable limits."  Association of Am. Pub-
lishers, 485 F.2d at 773.  Accord Direct Marketing Ass'n, 778 
F.2d at 102, 110-11.  In Association of American Publishers, 

the Commission decided to split the difference between two 
competing figures, observing that "[s]ince Solomon's day, to 
split the difference or to come close thereto has been thought 
wise, if only because it makes parties more likely to disclose 
to tribunals the truth."  485 F.2d at 773.  Here, the Commis-
sion elected a figure at the low-end of a narrow range, 
between the Service's estimate of 0.18% and the Alliance's 
estimate of 7.85%.

     The dilemma for the Commission was to quantify the 
extent of the mismatch between the two Service methods for 
tracking nonprofit mail.  Although the Alliance and the Ser-
vice's surveys acknowledged some mismatch existed, survey-
design flaws made its impossible for the Commission to know 
the exact amount of mismatching that had occurred.  As in 
Association of American Publishers, "[t]he only available 
figures were inaccurate, but were susceptible of rough adjust-
ment," id., because the Commission could reasonably assume 
that the mismatch was no worse than the Alliance's estimate 
of 7.85%, given its incentive to find the most favorable sample 
possible,12 nor better than the Service's estimate of 0.18%, 
given its interests in minimizing the problem so that its cost 
allocation estimates would remain undisturbed.13  Viewing the 
surveys, though flawed, to represent the outer limits of the 
true nature of the mismatch, with 7.85% as the ceiling and 

__________
     12 The Alliance contended during oral argument that there might 
have been a more biased sample of interested parties out there but 
that it did not "have access to the whole universe of nonprofit 
mailers."  Even so, the survey itself attempted to elicit a favorable 
response from those participants that the Alliance was able to 
reach.  Specifically, one version of the survey used by the Alliance 
alerted participants that "the ongoing postal rate case litigation 
before the Postal Rate Commission threatens to hit nonprofit 
Standard A mailers with substantial increases ... as high as 15-
18%" and urged them to respond "[i]n order to best protect your 
interests and the interests of your colleagues."  Such language 
could potentially discourage at least some respondents from reply-
ing if their own figures would not aid the nonprofit mailers' cause.

     13 Indeed, the Service argued before the Commission that no 
adjustment to nonprofit costs or rates was warranted.

0.18% as the floor, the Commission, given time constraints, 
could reasonably select a figure somewhere between that 
range and choose a number at the low end of the range.  
First, the results of the Alliance's survey were questionable 
because the Alliance failed to show that they reflected the 
experiences of non-profit mailers as a whole, particularly in 
light of the fact that so many of the responses came from one 
group.14  Second, the Commission expressed concern that the 
survey relied on a volume growth rate figure that it had not 
attempted to quantify.  Third, although the Service's survey 
suffered from flaws as well, in that it failed to consider a 
source of volume (mail voluntarily entered at commercial 
rates) that could not readily be quantified, and it relied in 
part on the memory of Postal employees, the Commission 
could still reasonably assume the mismatch problem was 
relatively small in view of the lack of reliable evidence pre-
sented by the Alliance that the mismatch was significant 
enough to warrant a major adjustment.  Cf. Mail Order 
Ass'n, 2 F.3d at 438.  Had the Commission adopted the 
Alliance's figure without having reliable evidence to back it 
up, the Commission would be creating a solution to a problem 
that may be relatively small, thereby unnecessarily penalizing 
commercial subclasses and opening itself up to accusations of 
arbitrary decision-making by subclasses negatively affected 
by its "solution."  Although the Commission must address a 
petitioner's allegations of error in the Service's calculations, 
the Commission need not assume that simply because an 

__________
     14 One-third of the Alliance's survey responses came from mem-
bers of a single association, the American Association of Museums, 
even though this group did not represent one-third of all non-profit 
mailers.  Two of the fundamental goals of designing a sample is to 
"choos[e] a sample that reflects relevant characteristics of the 
population, and [to] achiev[e] a certain level of precision for the 
statistical results.  A major influence on the precision of estimates 
is the size of the sample."  David W. Barnes & John M. Conley, 
Statistical Evidence in Litigation 253 (1986).  The validity of a 
survey's results is undermined if the sample is not representative of 
the population it purports to represent or is not selected in a 
sufficiently random manner.  See Frazier v. Consolidated Rail 
Corp., 851 F.2d 1447, 1452 (D. C. Cir. 1988).

objection is raised that a problem exists, when the petitioner 
fails to provide reliable data to support its position.  Here the 
Commission's choice of the one-percent figure avoided penal-
izing the commercial subclasses, in that the small shift in 
costs had almost no effect on their unit attributable cost, yet 
it also took into account the Alliance's concern that nonprofit 
mailers were being penalized with "unjustifiably high rates."

     Admittedly, the choice of the one-percent figure (as op-
posed to some other point between 0.18% and 7.85%) is 
somewhat mysterious, but the general path is clear enough.  
The record indicated that a mismatch problem existed, but 
that it might not be very large.  Although with more time, 
the Commission might have been able to get better informa-
tion, see Association of Am. Publishers, 485 F.2d at 773, a 
"judgmental approach" selecting a figure between these two 
estimates, though favoring the low end of the spectrum, was 
within the Commission's authority.

     Direct Marketing Association, 779 F.2d 96, presents an 
analogous situation.  The Second Circuit upheld the Commis-
sion's recommendation of a four-cent discount for certain 
presorted first class mail.  Id. at 109.  Finding fault with 
both the Service's recommended three-cent discount and an-
other witness' 4.5 cent figure, the Commission treated these 
estimates as the outer range of possible discounts, and select-
ed a figure in between the two.  Id. at 110.  The Commission 
found the Service's estimate approach "novel" and "very 
conservative," while the other witness' approach took into 
account costs unrelated to presort savings.  Id.  In develop-
ing its own approach, based on the Service's Revenue and 
Costs Analysis Report, the Commission noted that "[t]he 
record does not contain sufficient information to develop a 
more precise estimate."  Id. at 110-11 (quoting PRC Op. 
R84-1 at 368-69).  Thus, as in the instant case, the Commis-
sion's approach was "discernable from the evidentiary record 
upon which the recommendation [was] based."  Id. at 111.

     Schurz Communications, Inc. v. FCC, 982 F.2d 1043 (7th 
Cir. 1992), is distinguishable.  There, the Seventh Circuit 

criticized the Federal Communications Commission for 
"throwing up [its] hands and splitting the difference," rather 
than assessing who had the stronger case, when it enacted 
new rules governing television syndication rights.  Id. at 
1050.  The court concluded that the agency had overlooked 
key evidence and ignored arguments that it previously had 
accepted, id., while the Commission here considered the 
evidence before it.  San Antonio, Texas v. United States, 631 
F.2d 831 (D.C. Cir. 1980), clarified by 655 F.2d 1341 (D.C. 
Cir. 1981), rev'd on other grounds sub nom. Burlington 
Northern, Inc. v. United States, 459 U.S. 131 (1982), is also 
distinguishable;  the Interstate Commerce Commission of-
fered no evidence or rationale for its "seven percent solution," 
and in fact its reasoning could support any percentage, 
whether one or 99 percent.  Id. at 852.  Here, the Commis-
sion chose a percentage between two competing numbers, 
representing a relatively small range, and although the Com-
mission could have explained in greater detail why it chose 
the low-end rather than the high-end of this range, its path 
was reasonably clear.

                 C. Alaskan Parcel Post Air Costs

     United Parcel Service (UPS) first challenges the amount of 
the Commission's attributable costs for Parcel Post mail15 on 
the ground that the Commission improperly excluded from 
them a substantial portion of air transportation costs attribut-
able to delivering Parcel Post mail to the remote Alaskan 
"bush country."  Because the Alaskan bush country is acces-
sible only by air, all mail delivered there, including nonprefer-
ential Parcel Post mail, which is usually carried by ground 
transport, must be delivered by air, inflating considerably the 
costs of delivering Parcel Post mail to the area.  The Com-
mission elected to attribute only a portion of the air delivery 

__________
     15 "Parcel Post includes mailable matter weighing 16 ounces or 
more, but not exceeding 70 pounds in weight or 108 inches in 
combined length and girth.  In general, Parcel Post is used for 
matter 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 the 
remainder was attributable to the Act's "universal service 
obligation," which the Commission found to be the primary 
cause of the air costs.  See 39 U.S.C. s 101(a) (1994) (provid-
ing Postal Service "shall provide prompt, reliable, and effi-
cient services to patrons in all areas and shall render postal 
services to all communities") (emphasis added).  Because the 
statutory term "attributable" is ambiguous, we defer to the 
Commission's reasonable interpretation of it and uphold its 
consequent decision to attribute only a portion of Alaskan air 
costs to the Parcel Post subclass.

     As noted above, section 3622(b)(3) requires "that each class 
of mail or type of mail service bear the direct and indirect 
postal costs attributable to that class or type." Id. 
s 3622(b)(3).  Thus, "all costs that in the judgment of the 
Rate Commission are the consequence of providing a particu-
lar class of service must be borne by that class."  National 
Ass'n of Greeting Card Publishers, 462 U.S. at 833.  In this 
ratemaking, as in past ratemakings, the Commission general-
ly attributed costs under the "volume variability" methodolo-
gy, which classifies a cost as "volume variable" and therefore 
attributable to a particular class if the cost rises as the 
volume of the particular class of mail rises.  See Mail Order 
Ass'n, 2 F.3d at 427 ("Traditionally, access costs have been 
attributed to mail subclasses based on a 'volume variability' 
formula that related 'access costs' to a particular subclass's 
mail volume.  Generally, the greater the volume of the sub-
class's mail, the greater the attributed access costs.");  see 
also Newsweek, Inc. v. USPS, 663 F.2d 1186, 1207-08 (2d Cir. 
1981), aff'd and remanded, 462 U.S. 810 (1983).  Here, how-
ever, the Commission elected to deviate from strict volume 
variable causation because of the unusual and constraining 
geographical circumstances of Alaskan Parcel Post service.

__________
     16 Although the Act directs the Commission to recommend 
"changes in rates or fees in each class of mail" 39 U.S.C. s 3622(a) 
(emphasis added), the Commission has carved out discrete subclass-
es of mail classes that it deems warrant separate consideration.

     In its decision the Commission applied a "premium costing 
approach" under which the attributable costs of delivering 
Alaskan Parcel Post were "calculated based on the nationwide 
average costs of [ ] highway transportation," while "[t]he 
remaining portion, approximately $70 million for the last 
year, is transferred to the institutional cost pool and recov-
ered through the markup procedure pursuant to the Act."  
PRC Op. R97-1 at 220.  The Commission's decision explained 
this attribution only briefly:

     The costs of serving areas without road access, the so-
     called 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 ser-
     vice 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 clearly 
and extensively in the 1990 postal ratemaking decision in 
which, as the Commission specifically noted here, for the first 
time "a portion of the costs of intra-Alaskan transportation 
costs ... ha[d] been considered institutional, although they 
are recognized as being volume variable in nature."  Id.;  see 
Opinion and Recommended Decision of the United States 
Postal 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 substi-
     tute 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 obli-
     gation 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 the 
"premium costing approach" as reasonable under the circum-
stances:

     Our approach is the one supported by the record before 
     us.  The evidence shows that the costs are being over-
     attributed, 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 sub-
     classes, parcel post and Priority Mail, requires that the 
     costing method be improved.
     
Id. at III-212.  The Commission also explained why it consid-
ered the Alaskan air costs caused by and therefore attribut-
able 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 bifurcat-
ed attribution of Alaskan air costs.

     Nevertheless, UPS contends the Commission's use of the 
premium cost approach violates the Act because it either (1) 
fails to allocate to Parcel Post the Alaskan air costs that the 
Commission has found attributable to that subclass or (2) fails 
in the first instance to find that such costs are attributable to 
Parcel Post even though the Commission acknowledged the 
costs "are recognized as being volume variable in nature."  

PRC Op. R97-1 at 220.  UPS's first objection is easily 
answered:  the Commission specifically found that the "premi-
um" air delivery costs are attributable not to Parcel Post 
service but to the statutory universal service obligation.  As 
for the second, although the Commission has generally used 
volume variability to attribute costs, the Act itself does not 
require any specific cost method or define the term "attribut-
able," which, as the Commission's analysis demonstrates, can 
have various meanings that support various attribution meth-
ods.  See National Ass'n of Greeting Card Publishers, 462 
U.S. at 825-26. ("We agree with the Rate Commission's 
consistent position that Congress did not dictate a specific 
method for identifying causal relationships between costs and 
classes of mail, but that the Act 'envisions consideration of all 
appropriate costing approaches.' ") (quoting Commission's de-
cision).  Instead, the Act "leaves it to the Commissioners, in 
the first instance, to decide which methods provide reasonable 
assurance that costs are the result of providing one class of 
service."  Id. at 833;  see also id. at 827 ("On its face, there is 
no reason to suppose that s 3622(b)(3) denies to the expert 
ratesetting agency, exercising its reasonable judgment, the 
authority to decide which methods sufficiently identify the 
requisite causal connection between particular services and 
particular costs.").  Because "the statute is silent or ambigu-
ous" on which cost method to use, "the question for the court 
is whether the agency's answer is based on a permissible 
construction of the statute."  Chevron USA, Inc. v. Natural 
Resources Defense Council, Inc., 467 U.S. 837, 843 (1984);  see 
also National Ass'n of Greeting Card Publishers, 462 U.S. at 
814-15. Based on its analysis in the 1990 ratemaking decision, 
we conclude that the Commission's choice of the premium 
methodology reflects a reasonable construction of the Act and 
must therefore be upheld.

               D. Priority Mail Institutional Costs

     UPS next challenges the Commission's allocation of Priori-
ty Mail institutional costs.17  The Commission assigns institu-

__________
     17 "Priority mail is a service available for all mailable items up to 
70 pounds in weight that offers somewhat more expedited delivery 

tional costs by establishing a separate markup for each class 
of mail and then applying the markup to the class's attribut-
able costs.  In this ratemaking the Commission recommended 
an institutional markup for Priority Mail of 66.1%.  UPS 
contends this markup is artificially low and shifts to First 
Class mail institutional costs reasonably assignable to Priority 
Mail in violation of section 3622(b)(3).  We conclude the 
institutional costs for Priority Mail are, as the statute re-
quires, "reasonably assignable" to the subclass and we there-
fore uphold them.

     As we noted above, once the Commission has established 
attributable costs under its two-tier cost methodology, it must 
then allocate institutional costs by " 'reasonably assign[ing]' 
the remaining costs to the various classes of mail on the basis 
of the other factors set forth in s 3622(b)." National Ass'n of 
Greeting Card Publishers, 462 U.S. at 815 (internal citation 
omitted). In assigning Priority Mail institutional costs, the 
Commission relied heavily on the second statutory factor 
included in section 3622(b):  "the value of the mail service 
actually provided each class or type of mail service to both 
the sender and the recipient, including but not limited to the 
collection, mode of transportation, and priority of delivery."  
39 U.S.C. s 3622(b)(2).  The Commission cited testimony that 
Priority Mail has a high "intrinsic value of service," which 
might justify a higher share of institutional costs, but also 
noted that it has a "high own-price elasticity," meaning that 
rate increases might drive away customers despite the high 
intrinsic value, therefore calling for a lower markup.  PRC 
Op. R97-1 at 359.  The Commission further pointed to testi-
mony questioning the value of Priority Mail's service because 
(1) it often falls short of one- and two-day delivery bench-
marks, (2) its service will deteriorate further with implemen-
tation of a new processing network service, (3) its market 

__________
than First-Class Mail.  On this basis, it competes in the two-day 
document and package market.  Priority Mail also constitutes the 
extension of First-Class-Mail services to pieces weighing 11 ounces 
or more.  Consequently, Priority Mail consists both of monopoly 
letter mail and items that could be delivered by a competing 
carrier...."  PRC Op. R97-1 at 352.

share has been decreasing, and (4) it lacks enhancements 
available with private priority delivery services, such as auto-
matic insurance coverage, billing, payment and rate options 
and guaranteed delivery.  Id. at 360-62.  Based on its per-
ception of the value of Priority Mail service and of the 
deleterious effect a price increase might have, the Commis-
sion concluded that a "reduction in the proportional contribu-
tion by Priority Mail is not unreasonable," especially since 
even the lower markup the Commission recommended led to 
a rate increase for Priority Mail that exceeded the system-
wide average.  Id. at 362.  UPS challenges the 66.1% Priority 
Mail markup primarily on two grounds.  We find neither one 
persuasive.

     First, UPS contends that in the 1997 ratemaking the 
Commission impermissibly "changed course" without explana-
tion because for the first time it assigned a lower markup to 
Priority Mail than to regular First Class mail.  This argu-
ment misapprehends the Commission's institutional cost as-
signment process.  The Commission has not, in this ratemak-
ing or previous ones, assigned the Priority Mail markup 
based on its relationship to the First Class markup, as is 
manifest from the widely varying gaps between the two 
markups in each of the ten ratemakings conducted under the 
Act.  See JA vol. i 706.  Instead, the Commission assigned 
the markup here, as before, based on consideration of the 
mandatory statutory factors.  See PRC Op. R97-1 at 371.18  
It was these factors, and the second one in particular, that led 
the Commission to assign lower institutional costs to Priority 
Mail.

     UPS also argues that consideration of the fourth and fifth 
statutory factors ("the effect of rate increases upon the 

__________
     18 The Commission did remark that, because Priority Mail is "an 
extension of First Class Letters and Sealed Parcels," assigning it "a 
markup similar to First-Class letters is justified," PRC Op. R97-1 
at 362, but only after it assigned the markup-apparently as back-up 
justification and in answer to UPS's claim that the relationship 
between the two markups should stay the same as in the previous 
ratemaking.  See PRC Op. R97-1 at 359-60.

general public, business mail users, and enterprises in the 
private sector of the economy engaged in the delivery of mail 
matter other than letters" and "the available alternative 
means of sending and receiving letters and other mail matter 
at reasonable costs," 39 U.S.C. s 3622(b)(4), (5) requires that 
the Commission assign lower universal costs to the monopoly 
regular First Class mail than to Priority Mail because those 
factors were intended to protect the interests of First Class 
customers, who have no private alternative, and of Priority 
Mail competitors, each of which will be harmed by higher 
First Class and lower Priority Mail rates.  We disagree.  
While the Commission must " 'take into account all the rele-
vant factors and no others,' " Mail Order Ass'n, 2 F.3d at 426 
(quoting Association of Am. Publishers, 485 F.2d at 775), it 
need not give each factor equal weight. " '[U]nder familiar 
jurisdictional principles,' " we " 'may not, and under human 
limitations generally could not, reassess the weights given by 
a rate-making agency to different factors, absent a legislative 
direction 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 fault 
the Commission's determination that the second factor is the 
decisive one here.  In any event, UPS's reading of the 
statutory provisions it invokes is unduly narrow.  By its 
terms, s 3622(b)(4) allows the Commission to consider lower-
ing rates in order to protect "the general public [and] busi-
ness mail users," as well as raising them in the interests of 
"enterprises in the private sector ... engaged in the delivery 
of mail matter."  As to s 3622(b)(5), the Commission has 
consistently, and reasonably, held that it authorizes a reduc-
tion in rates to maintain the position of the Postal Service as 
a competitor in the mail delivery industry.

                       E. "Local Only" Mail

     Finally, Niagara Telephone Company (Niagara) challenges 
the Commission's rejection of Niagara's proposed separate 
rate for mail deposited in "local only" mail boxes located at 
individual post offices.  Niagara maintains that, because this 
mail is sorted by the sender, it costs the Postal Service less to 

deliver than other First Class mail and that this savings 
should be passed on to customers.  The Commission rejected 
Niagara's proposal because "the record remains undeveloped 
on matters critical to a determination on the merits, such as 
its impact on net revenues."  PRC Op. R97-1 at 345.  We see 
no defect in the Commission's determination.

     In Mail Order Ass'n, we upheld the Commission's decision 
not to establish a separate classification and rate, proposed by 
Niagara, for "non-transported" mail that never leaves the 
post office where deposited but is placed directly into on-site 
post office boxes (specifically, utility bills Niagara sent to 
customers).  The court reasoned:

     Even though 39 U.S.C. s 3622(b)(3) requires each "class 
     of mail or type of mail service" to recover its attributable 
     costs, that section does not require creation of a separate 
     class of mail for every single cost characteristic.  As we 
     noted before, s 3622(b)(7) allows the Commission to con-
     sider the simplicity of the rate structure, and a separate 
     rate for every group of mailers with special cost savings, 
     no matter how small the group, would produce a hope-
     lessly complicated rate schedule.  This does not mean 
     the Commission may always reject proposed cost-based 
     classifications in order to avoid complexity in the rate 
     schedule;  in some cases the facts might be compelling 
     enough to require a new classification.  Here, however, 
     given the complete absence of evidence establishing the 
     existence of a substantial category of mail systemically 
     involving lower costs, the Commission's rejection of Ni-
     agara's proposal was not arbitrary or a violation of 
     s 3622(b)(3).
     
Mail Order Ass'n, 2 F.3d at 426.  In this case too there is no 
record evidence to compel creation of the mail subclass 
Niagara proposes and we therefore conclude the Commission 
reasonably declined to do so.

     For the preceding reasons, the petitions for review are

                                                          Denied.