2010-1055. New Postal Product

AGENCY:

Postal Regulatory Commission.

ACTION:

Final rule.

SUMMARY:

The Commission is adding Express Mail Contract 7 to the Competitive Product List. This action is consistent with a postal reform law. Republication of the lists of market dominant and competitive products is also consistent with statutory requirements.

DATES:

Effective January 21, 2010 and is applicable beginning December 15, 2009.

FOR FURTHER INFORMATION CONTACT:

Stephen L. Sharfman, General Counsel, 202-789-6820 or [e-mail].

SUPPLEMENTARY INFORMATION:

Regulatory History, 74 FR 57538 (November 6, 2009).

I. Introduction

II. Background

III. Comments

IV. Commission Analysis

V. Ordering Paragraphs

I. Introduction

The Postal Service seeks to add a new product identified as Express Mail Contract 7 to the Competitive Product List. For the reasons discussed below, the Commission approves the Request.

II. Background

At the end of October 2009, the Postal Service filed a formal request and associated supporting information pursuant to 39 U.S.C. 3642 and 39 CFR 3020.30 et seq. to add Express Mail Contract 7 to the Competitive Product List.¹ The Postal Service asserts that the Express Mail Contract 7 product is a competitive product “not of general applicability” within the meaning of 39 U.S.C. 3632(b)(3). This Request has been assigned Docket No. MC2010-7.

The Postal Service contemporaneously filed a contract related to the proposed new product pursuant to 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5. The contract has been assigned Docket No. CP2010-7.

In support of its Request, the Postal Service filed the following materials: (1) A redacted version of the Governors' Decision authorizing certain types of Express Mail contracts;² (2) a redacted version of the contract;³ (3) a requested change in the Mail Classification Schedule product list;⁴ (4) a Statement of Supporting Justification as required by 39 CFR 3020.32;⁵ (5) a certification of compliance with 39 U.S.C. 3633(a);⁶ and (6) an application for non-public treatment of the materials filed under seal.⁷ The redacted version of the contract provides that the contract is terminable on 30 days' notice by either party, but could continue for 3 years from the effective date subject to annual price adjustments. Request, Attachment B.

In the Statement of Supporting Justification, Mary Prince Anderson, Acting Manager, Sales and Communications, Expedited Shipping, asserts that the service to be provided under the contract will cover its attributable costs, make a positive contribution to coverage of institutional costs, and will increase contribution toward the requisite 5.5 percent of the Postal Service's total institutional costs. Request, Attachment D, at 1. W. Ashley Lyons, Manager, Regulatory Reporting and Cost Analysis, Finance Department, certifies that the contract complies with 39 U.S.C. 3633(a). Id., Attachment E.

The Postal Service filed much of the supporting materials, including the supporting data and the unredacted contract, under seal. The Postal Service maintains that the contract and related financial information, including the customer's name and the accompanying analyses that provide prices, certain terms and conditions, and financial projections, should remain confidential. Id., Attachment F, at 2-3.⁸

In Order No. 331, the Commission gave notice of the two dockets, appointed a public representative, and provided the public with an opportunity to comment.⁹ On November 2, 2009, Chairman's Information Request No. 1 (CHIR No. 1) was filed. The due date for responding to CHIR No. 1 was set as November 9, 2009. On November 13, 2009, the Postal Service filed a partial response to CHIR No. 1.¹⁰ Seeking clarification of information contained in the Postal Service's November 13, 2009 partial response, Chairman's Information Request No. 2 (CHIR No. 2) was filed on November 16, 2009.¹¹ The Postal Service responded to CHIR No. 2 on November 19, 2009.¹² On December 9, 2009, the Postal Service filed its response to the outstanding questions in CHIR No. 1.¹³

III. Comments

Comments were timely filed by the Public Representative on November 9, 2009.¹⁴ No comments were submitted by other interested parties. The Public Representative states that the Postal Service's filing meets the pertinent provisions of title 39 and the relevant Commission rules. Id. at 1-3. He further states that the agreement is fair to the parties and employs pricing terms favorable to the customer, the Postal Service, and thereby, the public. Id. at 4-5. The Public Representative also believes that the Postal Service has provided appropriate justification for maintaining confidentiality in this case. Id. at 3.

IV. Commission Analysis

The Commission has reviewed the Request, the contract, the financial analysis provided under seal that accompanies the Request, the responses to CHIR Nos. 1 and 2, and the comments filed by the Public Representative.

Statutory requirements. The Commission's statutory responsibilities in this instance entail assigning Express Mail Contract 7 to either the Market Dominant Product List or to the Competitive Product List. 39 U.S.C. 3642. As part of this responsibility, the Commission also reviews the proposal for compliance with the Postal Accountability and Enhancement Act (PAEA) requirements. This includes, for proposed competitive products, a review of the provisions applicable to rates for competitive products. 39 U.S.C. 3633.

Product list assignment. In determining whether to assign Express Mail Contract 7 as a product to the Market Dominant Product List or the Competitive Product List, the Commission must consider whether

the Postal Service exercises sufficient market power that it can effectively set the price of such product substantially above costs, raise prices significantly, decrease quality, or decrease output, without risk of losing a significant level of business to other firms offering similar products.

39 U.S.C. 3642(b)(1). If so, the product will be categorized as market dominant. The competitive category of products consists of all other products.

The Commission is further required to consider the availability and nature of enterprises in the private sector engaged in the delivery of the product, the views of those who use the product, and the likely impact on small business concerns. 39 U.S.C. 3642(b)(3).

The Postal Service asserts that its bargaining position is constrained by the existence of other shippers who can provide similar services, thus precluding it from taking unilateral action to increase prices without the risk of losing volume to private companies. Request, Attachment D, para. (d). The Postal Service also contends that it may not decrease quality or output without risking the loss of business to competitors that offer similar expedited delivery services. Id. It further states that the contract partner supports the addition of the contract to the Competitive Product List to effectuate the negotiated contractual terms. Id., para. (g). Finally, the Postal Service states that the market for expedited delivery services is highly competitive and requires a substantial infrastructure to support a national network. It indicates that large carriers serve this market. Accordingly, the Postal Service states that it is unaware of any small business concerns that could offer comparable service for this customer. Id., para. (h).

No commenter opposes the proposed classification of Express Mail Contract 7 as competitive. Having considered the statutory requirements and the support offered by the Postal Service, the Commission finds that Express Mail Contract 7 is appropriately classified as a competitive product and should be added to the Competitive Product List.

Cost considerations. In its initial filings, the Postal Service presented an incomplete financial analysis of Express Mail Contract 7. The incomplete initial filings did not allow the Commission to undertake the required analysis of Express Mail Contract 7 until the Postal Service fully responded to CHIR Nos. 1 and 2. Because the Postal Service did not fully respond to CHIR No. 1 until December 9, 2009, the Commission could not begin its analysis until that time. Even then, further informal follow-up to the Postal Service's responses to CHIR No. 1 was necessary for a complete understanding of the data.

Based on the data and explanations submitted, the Commission finds that Express Mail Contract 7 should cover its attributable costs (39 U.S.C. 3633(a)(2)), should not lead to the subsidization of competitive products by market dominant products (39 U.S.C. 3633(a)(1)), and should have a positive effect on competitive products' contribution to institutional costs (39 U.S.C. 3633(a)(3)). Thus, an initial review of proposed Express Mail Contract 7 indicates that it comports with the provisions applicable to rates for competitive products. The Commission's analysis is provided in Library Reference PRC-CP2010-7-NP-LR1 which is being filed under seal.

Other considerations. The Postal Service shall notify the Commission if termination occurs prior to the scheduled termination date. Following the scheduled termination date of the agreement, the Commission will remove the product from the Competitive Product List.

Further, while the Commission currently believes that the contract is expected to comply with the applicable requirements of 39 U.S.C. 3633, the Commission seeks to ensure that it is provided with the proper level of detail to make appropriate findings in the FY 2010 Annual Compliance Determination (ACD) with respect to this contract. To that end, the Postal Service should view Library Reference PRC-CP2010-7-NP-LR1 as illustrative of the granularity of the information to be reported with respect to this contract.

In conclusion, the Commission approves Express Mail Contract 7 as a new product. The revision to the Competitive Product List is shown below the signature of this order and is effective upon issuance of this order.

V. Ordering Paragraphs

It is ordered:

1. Express Mail Contract 7 (MC2010-7 and CP2010-7) is added to the Competitive Product List as a new product under Negotiated Service Agreements, Domestic.

2. The Postal Service shall notify the Commission if termination occurs prior to the scheduled termination date.

3. The Postal Service shall view Library Reference PRC-CP2010-7-NP-LR1 as illustrative of the level of detail of information that the Commission seeks with respect to this contract in connection with its FY 2010 Annual Compliance Determination proceeding.

4. The Secretary shall arrange for the publication of this order in the Federal Register.

List of Subjects in 39 CFR Part 3020

• Administrative practice and procedure; Postal Service

By the Commission.

Judith M. Grady,

Acting Secretary.

For the reasons discussed in the preamble, the Postal Regulatory Commission amends chapter III of title 39 of the Code of Federal Regulations as follows:

PART 3020—PRODUCT LISTS

1. The authority citation for part 3020 continues to read as follows:

Authority: Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682.

2. Revise Appendix A to Subpart A of Part 3020-Mail Classification Schedule to read as follows:

Appendix A to Subpart A of Part 3020—Mail Classification Schedule

Part A—Market Dominant Products

1000 Market Dominant Product List

First-Class Mail

Single-Piece Letters/Postcards

Bulk Letters/Postcards

Flats

Parcels

Outbound Single-Piece First-Class Mail International

Inbound Single-Piece First-Class Mail International

Standard Mail (Regular and Nonprofit)

High Density and Saturation Letters

High Density and Saturation Flats/Parcels

Carrier Route

Letters

Flats

Not Flat-Machinables (NFMs)/Parcels

Periodicals

Within County Periodicals

Outside County Periodicals

Package Services

Single-Piece Parcel Post

Inbound Surface Parcel Post (at UPU rates)

Bound Printed Matter Flats

Bound Printed Matter Parcels

Media Mail/Library Mail

Special Services

Ancillary Services

International Ancillary Services

Address List Services

Caller Service

Change-of-Address Credit Card Authentication

Confirm

International Reply Coupon Service

International Business Reply Mail Service

Money Orders

Post Office Box Service

Negotiated Service Agreements

HSBC North America Holdings Inc. Negotiated Service Agreement

Bookspan Negotiated Service Agreement

Bank of America Corporation Negotiated Service Agreement

The Bradford Group Negotiated Service Agreement

Inbound International

Canada Post—United States Postal Service Contractual Bilateral Agreement for Inbound Market Dominant Services

Market Dominant Product Descriptions

First-Class Mail

[Reserved for Class Description]

Single-Piece Letters/Postcards

[Reserved for Product Description]

Bulk Letters/Postcards

[Reserved for Product Description]

Flats

[Reserved for Product Description]

Parcels

[Reserved for Product Description]

Outbound Single-Piece First-Class Mail International

[Reserved for Product Description]

Inbound Single-Piece First-Class Mail International

[Reserved for Product Description]

Standard Mail (Regular and Nonprofit)

[Reserved for Class Description]

High Density and Saturation Letters

[Reserved for Product Description]

High Density and Saturation Flats/Parcels

[Reserved for Product Description]

Carrier Route

[Reserved for Product Description]

Letters

[Reserved for Product Description]

Flats

[Reserved for Product Description]

Not Flat-Machinables (NFMs)/Parcels

[Reserved for Product Description]

Periodicals

[Reserved for Class Description]

Within County Periodicals

[Reserved for Product Description]

Outside County Periodicals

[Reserved for Product Description]

Package Services

[Reserved for Class Description]

Single-Piece Parcel Post

[Reserved for Product Description]

Inbound Surface Parcel Post (at UPU rates)

[Reserved for Product Description]

Bound Printed Matter Flats

[Reserved for Product Description]

Bound Printed Matter Parcels

[Reserved for Product Description]

Media Mail/Library Mail

[Reserved for Product Description]

Special Services

[Reserved for Class Description]

Ancillary Services

[Reserved for Product Description]

Address Correction Service

[Reserved for Product Description]

Applications and Mailing Permits

[Reserved for Product Description]

Business Reply Mail

[Reserved for Product Description]

Bulk Parcel Return Service

[Reserved for Product Description]

Certified Mail

[Reserved for Product Description]

Certificate of Mailing

[Reserved for Product Description]

Collect on Delivery

[Reserved for Product Description]

Delivery Confirmation

[Reserved for Product Description]

Insurance

[Reserved for Product Description]

Merchandise Return Service

[Reserved for Product Description]

Parcel Airlift (PAL)

[Reserved for Product Description]

Registered Mail

[Reserved for Product Description]

Return Receipt

[Reserved for Product Description]

Return Receipt for Merchandise

[Reserved for Product Description]

Restricted Delivery

[Reserved for Product Description]

Shipper-Paid Forward

[Reserved for Product Description]

Signature Confirmation

[Reserved for Product Description]

Special Handling

[Reserved for Product Description]

Stamped Envelopes

[Reserved for Product Description]

Stamped Cards

[Reserved for Product Description]

Premium Stamped Stationery

[Reserved for Product Description]

Premium Stamped Cards

[Reserved for Product Description]

International Ancillary Services

[Reserved for Product Description]

International Certificate of Mailing

[Reserved for Product Description]

International Registered Mail

[Reserved for Product Description]

International Return Receipt

[Reserved for Product Description]

International Restricted Delivery

[Reserved for Product Description]

Address List Services

[Reserved for Product Description]

Caller Service

[Reserved for Product Description]

Change-of-Address Credit Card Authentication

[Reserved for Product Description]

Confirm

[Reserved for Product Description]

International Reply Coupon Service

[Reserved for Product Description]

International Business Reply Mail Service

[Reserved for Product Description]

Money Orders

[Reserved for Product Description]

Post Office Box Service

[Reserved for Product Description]

Negotiated Service Agreements

[Reserved for Class Description]

HSBC North America Holdings Inc. Negotiated Service Agreement

[Reserved for Product Description]

Bookspan Negotiated Service Agreement

[Reserved for Product Description]

Bank of America Corporation Negotiated Service Agreement

The Bradford Group Negotiated Service Agreement

Part B—Competitive Products

2000 Competitive Product List

Express Mail

Express Mail

Outbound International Expedited Services

Inbound International Expedited Services

Inbound International Expedited Services 1 (CP2008-7)

Inbound International Expedited Services 2 (MC2009-10 and CP2009-12)

Priority Mail

Priority Mail

Outbound Priority Mail International

Inbound Air Parcel Post

Royal Mail Group Inbound Air Parcel Post Agreement

Parcel Select

Parcel Return Service

International

International Priority Airlift (IPA)

International Surface Airlift (ISAL)

International Direct Sacks—M—Bags

Global Customized Shipping Services

Inbound Surface Parcel Post (at non-UPU rates)

Canada Post—United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services (MC2009-8 and CP2009-9)

International Money Transfer Service

International Ancillary Services

Special Services

Premium Forwarding Service

Negotiated Service Agreements

Domestic

Express Mail Contract 1 (MC2008-5)

Express Mail Contract 2 (MC2009-3 and CP2009-4)

Express Mail Contract 3 (MC2009-15 and CP2009-21)

Express Mail Contract 4 (MC2009-34 and CP2009-45)

Express Mail Contract 5 (MC2010-5 and CP2010-5)

Express Mail Contract 6 (MC2010--6 and CP2010-6)

Express Mail Contract 7 (MC2010--7 and CP2010-7)

Express Mail & Priority Mail Contract 1 (MC2009-6 and CP2009-7)

Express Mail & Priority Mail Contract 2 (MC2009-12 and CP2009-14)

Express Mail & Priority Mail Contract 3 (MC2009-13 and CP2009-17)

Express Mail & Priority Mail Contract 4 (MC2009-17 and CP2009-24)

Express Mail & Priority Mail Contract 5 (MC2009-18 and CP2009-25)

Express Mail & Priority Mail Contract 6 (MC2009-31 and CP2009-42)

Express Mail & Priority Mail Contract 7 (MC2009-32 and CP2009-43)

Express Mail & Priority Mail Contract 8 (MC2009-33 and CP2009-44)

Parcel Select & Parcel Return Service Contract 1 (MC2009-11 and CP2009-13)

Parcel Select & Parcel Return Service Contract 2 (MC2009-40 and CP2009-61)

Parcel Return Service Contract 1 (MC2009-1 and CP2009-2)

Priority Mail Contract 1 (MC2008-8 and CP2008-26)

Priority Mail Contract 2 (MC2009-2 and CP2009-3)

Priority Mail Contract 3 (MC2009-4 and CP2009-5)

Priority Mail Contract 4 (MC2009-5 and CP2009-6)

Priority Mail Contract 5 (MC2009-21 and CP2009-26)

Priority Mail Contract 6 (MC2009-25 and CP2009-30)

Priority Mail Contract 7 (MC2009-25 and CP2009-31)

Priority Mail Contract 8 (MC2009-25 and CP2009-32)

Priority Mail Contract 9 (MC2009-25 and CP2009-33)

Priority Mail Contract 10 (MC2009-25 and CP2009-34)

Priority Mail Contract 11 (MC2009-27 and CP2009-37)

Priority Mail Contract 12 (MC2009-28 and CP2009-38)

Priority Mail Contract 13 (MC2009-29 and CP2009-39)

Priority Mail Contract 14 (MC2009-30 and CP2009-40)

Priority Mail Contract 15 (MC2009-35 and CP2009-54)

Priority Mail Contract 16 (MC2009-36 and CP2009-55)

Priority Mail Contract 17 (MC2009-37 and CP2009-56)

Priority Mail Contract 18 (MC2009-42 and CP2009-63)

Priority Mail Contract 19 (MC2010-1 and CP2010-1)

Priority Mail Contract 20 (MC2010-2 and CP2010-2)

Priority Mail Contract 21 (MC2010-3 and CP2010-3)

Priority Mail Contract 22 (MC2010-4 and CP2010-4)

Priority Mail Contract 23 (MC2010-9 and CP2010-9)

Outbound International

Direct Entry Parcels Contracts

Direct Entry Parcels 1 (MC2009-26 and CP2009-36)

Global Direct Contracts (MC2009-9, CP2009-10, and CP2009-11)

Global Expedited Package Services (GEPS) Contracts

GEPS 1 (CP2008-5, CP2008-11, CP2008-12, CP2008-13, CP2008-18, CP2008-19, CP2008-20, CP2008-21, CP2008-22, CP2008-23, and CP2008-24)

Global Expedited Package Services 2 (CP2009-50)

Global Plus Contracts

Global Plus 1 (CP2008-8, CP2008-46 and CP2009-47)

Global Plus 2 (MC2008-7, CP2008-48 and CP2008-49)

Inbound International

Inbound Direct Entry Contracts with Foreign Postal Administrations

Inbound Direct Entry Contracts with Foreign Postal Administrations (MC2008-6, CP2008-14 and MC2008-15)

Inbound Direct Entry Contracts with Foreign Postal Administrations 1 (MC2008-6 and CP2009-62)

International Business Reply Service Competitive Contract 1 (MC2009-14 and CP2009-20)

Competitive Product Descriptions

Express Mail

[Reserved for Group Description]

Express Mail

[Reserved for Product Description]

Outbound International Expedited Services

[Reserved for Product Description]

Inbound International Expedited Services

[Reserved for Product Description]

Priority

[Reserved for Product Description]

Priority Mail

[Reserved for Product Description]

Outbound Priority Mail International

[Reserved for Product Description]

Inbound Air Parcel Post

[Reserved for Product Description]

Parcel Select

[Reserved for Group Description]

Parcel Return Service

[Reserved for Group Description]

International

[Reserved for Group Description]

International Priority Airlift (IPA)

[Reserved for Product Description]

International Surface Airlift (ISAL)

[Reserved for Prduct Description]

International Direct Sacks—M-Bags

[Reserved for Product Description]

Global Customized Shipping Services

[Reserved for Product Description]

International Money Transfer Service

[Reserved for Product Description]

Inbound Surface Parcel Post (at non-UPU rates)

[Reserved for Product Description]

International Ancillary Services

[Reserved for Product Description]

International Certificate of Mailing

[Reserved for Product Description]

International Registered Mail

[Reserved for Product Description]

International Return Receipt

[Reserved for Product Description]

International Restricted Delivery

[Reserved for Product Description]

International Insurance

[Reserved for Product Description]

Negotiated Service Agreements

[Reserved for Group Description]

Domestic

[Reserved for Product Description]

Outbound International

[Reserved for Group Description]

Part C—Glossary of Terms and Conditions [Reserved]

Part D—Country Price Lists for International Mail [Reserved]

Footnotes

1.  Request of the United States Postal Service to Add Express Mail Contract 7 to Competitive Product List and Notice of Filing (Under Seal) of Contract and Supporting Data, October 28, 2009 (Request). On October 29, 2009, the Postal Service filed errata to its Request. See Notice of the United States Postal Service of Filing Errata to Request and Notice, October 29, 2009. Accordingly, the filing of the entire set of documents related to this Request was not completed until October 29, 2009.

2.  Attachment A to the Request, reflecting Governors' Decision No. 09-14, October 26, 2009.

3.  Attachment B to the Request.

4.  Attachment C to the Request.

5.  Attachment D to the Request.

6.  Attachment E to the Request.

7.  Attachment F to the Request.

8.  In its application for non-public treatment, the Postal Service requests an indefinite extension of non-public treatment of customer-identifying information. Id. at 7. For the reasons discussed in PRC Order No. 323, that request is denied. See, e.g., Docket No. MC2010-1 and CP2010-1, Order Concerning Priority Mail Contract 19 Negotiated Service Agreement, October 26, 2009 (Order No. 323).

9.  PRC Order No. 331, Notice and Order Concerning Express Mail Contract 7 Negotiated Service Agreement, October 30, 2009 (Order No. 331).

10.  Notice of the United States Postal Service of Filing Responses to Chairman's Information Request No. 1, Question 1, Subparts (b)-(d), Under Seal, November 13, 2009 (Partial Response to CHIR No. 1). With its Partial Response to CHIR No. 1, the Postal Service also filed a motion for late acceptance which contained an explanation of the reason for the delay and the issues with responding to the remaining information requests. Motion of the United States Postal Service for Late Acceptance of Responses to Chairman's Information Request No. 1, November 13, 2009. The motion is granted.

11.  Notice of Filing of Chairman's Information Request No. 2 Under Seal, November 16, 2009.

12.  Notice of the United States Postal Service of Filing Response to Chairman's Information Request No. 2, Under Seal, November 19, 2009.

13.  Notice of the United States Postal Service of Filing Response to Chairman's Information Request No. 1, Question 1(a), Under Seal, December 9, 2009 (Remaining Response to CHIR No. 1). With its Remaining Response to CHIR No. 1, the Postal Service filed a motion for late acceptance of that response. Motion of the United States Postal Service for Late Acceptance of Response to Chairman's Information Request No. 1, Question 1(a), December 9, 2009. The motion is granted, although the Postal Service should be aware that the significant delay in the Commission's decision in this case is directly related to the delay in the Postal Service's filing of this response.

14.  Public Representative Comments in Response to United States Postal Service Request to Add Express Mail Contract 7 to the Competitive Product List, November 9, 2009 (Public Representative Comments).