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PRC Issues Revised Proposal Regarding Mail Preparation Changes

In a notice issued March 27, the Postal Regulatory Commission stated it would soon be publishing in the Federal Register a revised proposed rule regarding when a mail preparation change have rate implications subject to the price cap.  This would be the PRC’s third attempt to craft such a rule.

The long backstory

The beginnings of this rulemaking go back to September 25, 2013, when the Postal Service filed a request with the PRC for a 1.6% CPI‐capped rate increase.  In that same filing, the USPS also sought to make Full Service IMB essential for mail to qualify for automation rates; automation rates couldn’t be earned otherwise – such as with only a Postnet barcode.

On November 21, 2013, the PRC issued an order approving the price increase, but also ruled that the F/S IMB requirement itself was effectively a price increase that, added to the 1.6%, would violate the cap.  The commission gave the USPS a choice: implement the approved rates without the IMB requirement, or start the case all over with a total re‐quest that factors in the rate impact of the requirement.

The USPS needed the rate increase sooner than later, so it opted to implement the 1.6% increase and withdraw the F/S IMB requirement.  However, on December 20, 2013, the Postal Service sued the PRC in federal court, seeking to over‐turn the commission’s decision.  While the industry and the Postal Service hoped for a quick decision from the court, the judicial process moved at its own pace; the appeals court took until May 12, 2015, to issue its ruling.

In their decision, the judges held that the PRC does have the authority to review rate eligibility requirements having “rate effects,” though that authority isn’t unlimited, but that in exercising its authority the commission’s decisions have to rest on rational and objective bases.  In its decision on the IMB requirement, the court ruled that the PRC’s order was

“… arbitrary and capricious because it fails to articulate a comprehensible standard for the circumstances in which a change to mail preparation requirements such as the one in this case will be considered a ‘change in rates’.”

The court sent the matter back to the PRC; on July 15, 2015, the commission issued an order to establish “procedures on remand” and to seek “comments on the standard to be ap‐plied when considering whether mail preparation changes are changes in rates.”  Making its first attempt to formulate a “rational and objective” rule, the commission proposed a standard that included four factors and fourteen subfactors that would be used by the PRC to determine “whether a mail preparation change constitutes a rate change.”

By the time comments (and reply comments) were concluded at the end of August, it was clear that the PRC’s proposed standard wasn’t well received.  One commenter called it “unnecessarily complex and unlikely to enable [distinguishing] between mail preparation changes which do and do not have significant rate effects.”  Another said it “compounds, rather than cures, the problems identified by the court.”  The negative consensus of commenters sent the commission back to the drawing board.

Its next attempt at a drafting a standard was contained in a January 22, 2016, order; that proposal held that:

“… a mail preparation change will be considered a classification change with price cap effects … when the change results in either the deletion and/or redefinition of a rate cell.  Deletion of a rate cell occurs when the mail preparation change causes the elimination of a rate, or the functional equivalent of an elimination of a rate, e.g., making the rate inaccessible.  Redefinition of a rate cell occurs when the mail preparation change causes a significant change to a basic characteristic of the mailing.”

In turn, the PRC published a notice of proposed rulemaking in the February 1, 2016, Federal Register to incorporate re‐lated procedures into the Code of Federal Regulations.

However, on February 22, the Postal Service filed two motions: one asking the PRC to suspend the rulemaking and the other urging it to reconsider its standard, claiming it was in‐consistent with the appeals court’s directions.  The USPS also went back to court to seek its concurrence that the PRC’s proposal still failed to comply with the court’s May 2015 ruling.

The next day, the PRC agreed to suspend the rulemaking, and requested comments on whether to reconsider its proposed standard; many mailer groups commented in opposition to reopening the matter.

On July 18, 2016, without ruling on the merits of the appeal, the court issued a terse order dismissing it as untimely, given that the PRC had yet to issue a decision on the Postal Service’s February motion for reconsideration.  Ironically, on July 20, the commission issued an order declining to reconsider its January decision, stating it was “unpersuaded by the Postal Service’s arguments on this issue,” and that the USPS “has not shown that the Commission failed to comply with the Court’s remand or committed error” in its January order.

On July 27, the PRC also reopened the rulemaking it had suspended, accepting comments through early September.

Back to the present

In its latest order, the PRC recapped the long history of the rulemaking, summarized comments received last year on the reopened rulemaking, and described its revised version of the original proposed rule.  The commission stated:

“The revised proposed rule would require the Postal Service to affirmatively designate whether or not a mail preparation requirement change implicates the price cap in a single, publicly available source.  Further, if challenged by a mailer or raised by the Commission, the Postal Service would have to demonstrate by a preponderance of the evidence that a mail preparation change does not require compliance with [the price cap].”

The notice about the reinstated rulemaking appeared in the March 27 Federal Register; comments are due by May 1.

So, readers may ask, why is this important?

The answer is simple: As the PRC stated, changing mail preparation rules in such a way that a rate/discount is no longer available, or is based on substantively different criteria, is a form of rate change to which the price cap rules apply.  The rulemaking is to prescribe how the USPS must indicate and explain whether a preparation change does or doesn’t constitute a de facto rate change, and allows customers to challenge its position.  Ensuring that rates and discounts are set or altered in a manner consistent with the ratemaking process is of obvious benefit to ratepayers and the companies who serve them.