Postal Regulatory Commission Submitted 10/9/2020 2:22:45 PM Filing ID: 114786 Accepted 10/9/2020 BEFORE THE POSTAL REGULATORY COMMISSION WASHINGTON, D.C. 20268-0001 MARKET-DOMINANT PRICE CHANGE Docket No. R2021-1 UNITED STATES POSTAL SERVICE NOTICE OF MARKET-DOMINANT PRICE CHANGE By its attorneys: Nabeel R. Cheema Chief Counsel, Pricing & Product Support Amanda Hamilton Jacob Howley Christopher C. Meyerson Valerie J. Pelton 475 L'Enfant Plaza, SW Washington, D.C. 20260 (202) 487-4341 [email protected] October 9, 2020 TABLE OF CONTENTS I. Overview of Price Case ........................................................................................... 1 II. Price Cap Compliance ............................................................................................. 4 A. Annual CPI Based Cap Space ........................................................................... 4 B. Unused Cap Space from Previous Years ........................................................... 4 C. Total Available Cap Space ................................................................................. 5 D. Percentage Change in Rates ............................................................................. 5 E. Unused Cap Space After Price Change ............................................................. 6 III. Discussion of New Rates ......................................................................................... 7 A. First-Class Mail .................................................................................................. 7 B. USPS Marketing Mail ....................................................................................... 12 C. Periodicals ........................................................................................................ 17 D. Package Services ............................................................................................ 23 E. Special Services ............................................................................................... 25 F. Promotions ....................................................................................................... 28 G. Seamless Acceptance Incentive ...................................................................... 32 H. Preferential Rates ............................................................................................ 34 IV. MCS Changes ....................................................................................................... 36 V. Library References ................................................................................................ 37 I. Overview of Price Case The United States Postal Service hereby provides notice that its Governors have determined to adjust rates for market-dominant products. 39 U.S.C. § 3622; 39 C.F.R. part 3030. As demonstrated below, the new rates are designed to be “reasonable and equitable” and “to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States” 39 U.S.C. § 404(b). The Postal Service submits the adjusted market-dominant rates to the Postal Regulatory Commission for review. The adjusted rates will take effect at 12:01 a.m. on January 24, 2021.1 There are several aspects of the Commission’s current rules relating to market- dominant ratemaking that the Commission has identified as in need of reform. In December 2017, the Commission concluded that the current system for regulating market-dominant rates—including, in particular, the inflation-based price cap—had failed to achieve critical statutory objectives, taking into account the factors. See generally Order No. 4257, Order on the Findings and Determination of the 39 U.S.C. § 3622 Review, PRC Docket No. RM2017-3 (Dec. 1, 2017). Among other things, the Commission found that the current inflation-based price cap has not achieved statutory objectives of financial stability or reasonable rates. Id. at 168-71, 230-36. It is even less likely to do so today, given the impacts of the COVID-19 pandemic. Between the Postal Service’s statutorily constrained cost structure and the exogenous, long-term market pressures leading to a loss in economies of density, it was already demonstrably 1 The Postal Service is publicizing the rate changes via Press Release, Industry Alert, DMM Advisory, and on its website, www.usps.com. The Postal Service will also provide notice in future issues of the PCC Insider, Postal Bulletin, Federal Register, and numerous webinars. - 2 - impossible to subsist under a rigid, inflation-only price cap. An extraordinary increase in expenses,2 coupled with the pandemic recession’s acceleration of market-dominant volume declines, only exacerbates the problems that the Commission diagnosed years ago. Until the Commission finally reforms the ineffective market-dominant rate system, the Postal Service is subjected to the constraints of a CPI-U measure that is increasingly unsuitable to fully achieving the statutory objectives. The Commission has also identified the role of Section 3622’s objectives and factors in an individual rate adjustment as needing reform. To that end, the Commission has proposed changes to its regulations that would remedy a wrongly- decided judicial mandate to discuss the statutory objectives and factors in each individual rate adjustment. Order 5337, Revised Notice of Proposed Rulemaking, PRC Docket No. RM2017-3 (Dec. 5, 2019), at 239-40. As previously stated, the Postal Service supports this proposed amendment. Reply Comments of the United States Postal Service in Response to Order No. 5337, PRC Docket No. RM2017-3 (Mar. 4, 2020), at 45-48. This change to the Commission’s procedural rules need not occur in the context of the overall system review under 39 U.S.C. § 3622(d)(3); the Commission could change the relevant rules through a standalone rulemaking. 39 U.S.C. § 3622(a)(1) (allowing for revisions in the Commission’s rules “from time to time” after initial implementation of the legacy regulatory system). Either way, given that such a regulatory change remains to be made, this Notice contains an appropriate discussion 2 The COVID-19 pandemic has resulted in increased expenses for the Postal Service, such as increases in expenses for personal protective equipment, maintenance, and employee leave (including new forms of mandated but unfunded leave); increased overtime to make up for employee absences; and costly shifts in purchased transportation. - 3 - of the statutory objectives and factors in light of Carlson v. Postal Regulatory Commission, 938 F.3d 337 (D.C. Cir. 2019). A. Postal Service Official Responsible for Commission Inquiries The Postal Service identifies Samie Rehman as the official available to respond to Commission inquiries:3 Samie Rehman, Manager, Pricing 475 L’Enfant Plaza SW, Room 4136 Washington, D.C. 20260 The remainder of this Notice is structured as follows. Part II details compliance with the price cap.4 Part III discusses the new rates and workshare discounts and their compliance with applicable statutes and regulations.5 This part includes a discussion of how the adjusted rates achieve the relevant objectives and take into account applicable factors.6 Part IV describes associated changes to the Mail Classification Schedule (MCS).7 The schedule of new rates can be found in Attachment A.8 3 39 C.F.R. 3030.512(a)(4). 4 Part II is intended to satisfy subparts (b)(1) through (b)(4) of Rule 3030.512. 5 Part III is intended to satisfy subparts (b)(5) through (b)(8) of Rule 3030.512. 6 Both the Commission and the D.C. Circuit acknowledge that not all of the Section 3622’s objectives are relevant in the Commission’s review of an individual rate notice. Order 5373, Order Approving Price Adjustments and Related Mail Classification Changes For First-Class Mail, PRC Docket No. R2020-1 (Dec. 20, 2019), at 17 (“Determinations of which objectives and factors are relevant, how much weight to apply to particular objectives and factors, and how to balance the objectives and factors on review of a particular price adjustment are committed to the discretion of the Commission.”); Carlson, 938 F.3d at 344 (“We recognize that not every statutory factor and objective will be relevant to an individual rate assessment and that the weight accorded particular factors may therefore vary in each case.”). 7 Part IV is intended to satisfy subpart (b)(11) of Rule 3030.512. 8 The prices are set forth in Mail Classification Schedule format in order to satisfy both subparts (a)(1) and (b)(11) of Rule 3030.512. - 4 - II. Price Cap Compliance The Postal Service is making a Type 1-B rate adjustment, meaning that it is using both the pricing authority (or “cap space”) that has accrued since the last rate case, as well as the unused (or “banked”) cap space carried over from prior years. 39 U.S.C. §§ 3622(d)(1)(A), (d)(2)(C); 39 C.F.R. § 3030.505. A. Annual CPI Based Cap Space Using the most recent data from the Bureau of Labor Statistics, and in conformance with Rule 3030.521, the cap space available to the Postal Service based on CPI is 1.458 percent. The calculations underlying this figure are presented in Attachment C.9 39 C.F.R. § 3030.512(b)(1). B. Unused Cap Space from Previous Years The banked cap space carried over from prior years is listed below. Table 1 Available Unused Cap Space Class Unused Authority (%) First-Class Mail 0.385 USPS Marketing Mail 0.061 Periodicals 0.000 Package Services 0.008 Special Services 0.007 9 See also Postal Regulatory Commission, 12-Month Average Change in CPI-U (Sept.