Daily Rules, Proposed Rules, and Notices of the Federal Government


39 CFR Parts 3001, 3010, 3015 and 3020

[Docket No. RM2007-1; Order No. 43]

Administrative Practice and Procedure, Postal Service

AGENCY: Postal Regulatory Commission.
ACTION: Final rule.
SUMMARY: A recently-enacted federal law directs the Commission to develop rules to implement a new postal ratemaking system. This document responds to that directive by adopting rules addressing market dominant and competitive products, including negotiated service agreements, the regulatory calendar, and product lists. Adoption of the rules allows the Postal Service and mailers to begin to exercise its options under the new law.
DATES: Effective date:November 9, 2007.

November 20, 2007: deadline for the Postal Service to provide information necessary for further development of the Mail Classification Schedule.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 202-789-6820

Regulatory History 72 FR 5230, February 5, 2007 72 FR 29284, May 25, 2007 72 FR 33261, June 15, 2007 72 FR 50744, September 4, 2007 I. Introduction

This order marks the end of the first phase of the Commission's efforts to develop the system of modern rate regulation contemplated by the Postal Accountability and Enhancement Act (PAEA), Public Law 109-435, 120 Stat. 3198, December 20, 2006. The Order adopts final rules governing market dominant products, competitive products, and product lists. It represents the Commission's initial attempt to fashion a coherent set of regulations implementing the new rate-setting process, an effort that has been guided by the PAEA's bedrock principles, namely flexibility, accountability, and transparency.

Throughout this rulemaking process, which began in January 2007, the parties' comments have been helpful, particularly in the latest round, sharpening the issues and suggesting alternative resolutions. The Commission appreciates the parties' contributions. The final rules focus particularly on comments and reply comments received in response to Order No. 26, which included proposed rules for regulating rates and classes under the PAEA.1

1In this proceeding, the Commission has received more than 160 comments. In response to Order No. 26 alone, 58 sets of comments were filed. The Commission has carefully reviewed these comments and, where appropriate, addresses them in this Order.

The final rules differ from the proposed rules in ways designed to clarify the rules in response to these comments. Principal highlights of the Order and final rules include: (1) Clarifying the intent of the proposed rules by specifying the content of notices of proceedings applicable to various types of filings, in lieu of uniform reliance on existing rule 3001.17; (2) Clarifying the legal implications of Commission findings in various proceedings; (3) Reaffirming the application of the rate cap to market dominant products; (4) Adopting a transition rule concerning the calculation of the annual limitation in the event of a transitional rate filing; (5) Clarifying the content of exigent rate requests; (6) Reaffirming that each negotiated service agreement (NSA) is a separate product, but noting that functionally equivalent NSAs may, upon proper showing, be grouped as one product; and (7) Adopting initial lists of market dominant and competitive products.

The final rules are issued almost 8 months before the statutory deadline. The rules do not purport to address every issue that might arise under the PAEA. Nonetheless, the benefits of implementing the regulations on an accelerated basis outweigh potential refinements in the rules that might be possible if the full 18-month period provided by statute were used.See39 U.S.C. 3622(a) and 3633(a). With experience, the rules may be modified if deemed necessary.

With the first phase of implementing the PAEA at an end, the Commission intends to turn as quickly as practicable to issuing proposed regulations on related matters under the PAEA, including those involving complaints, reporting requirements, and commercially sensitive materials. With the basic framework now in place, the Postal Service is free to utilize new flexible pricing approaches. Pending implementation of regulations on these related matters, the Commission's existing rules will continue to apply.

II. Regulation of Market Dominant Products: Part 3010 A. Overview

The Commission appreciates the commenters' thoughtful review of proposed part 3010 and their reasoned observations. It concludes that there is a broad consensus that the proposal's overall direction comports with the PAEA's philosophy. However, it also acknowledges that commenters identify aspects of the initial effort that would benefit from clarification or correction.

A considered assessment of the commenters' suggestions results, in some instances, in revisions to the rules.2 The Commission, on its own accord, also makes editorial and conforming changes to improve the clarity and readability of the rules or to conform them more closely to official publication requirements.

2Discussion focuses primarily on comments suggesting the need for changes. In instances where more than one commenter present similar suggestions, the discussion sometimes focuses mainly on one commenter's submission.

1. Note on Due Process

Review of the comments indicates that there are two broad due process concerns. One pertains to the Commission's issuance of rules implementing only some aspects of the PAEA's new regulatory framework. The other focuses on the approach reflected in specific rules in the proposals that have been issued.

The Postal Service and most commenters addressing finalization of part 3010 recognize that this is one of the first steps the Commission is taking to implement the PAEA, and that it is developing complementary regulations on related matters, such as annual reporting requirements and complaint proceedings. The Commission appreciates that commenters are being asked to assess the advisability of certain procedures prior to issuance of a comprehensive set of regulations. However, it finds that pragmatic considerations and the interest in promptly implementing PAEA policies dictate serial issuance of new rulemaking proposals, rather than a complete set. Moreover, the Commission believes that issuance of the proposed regulations in parts 3010, 3015 and 3020 at the same time has provided commenters with an adequate basis for assessing many essential initial issues. However, as Advo observes with respect to all of the Order No. 26 proposals, * * * the true measure of their success will come when they are applied * * * to specific issues that arise in the future.” Advo Comments,September 24, 2007, at 1. The Commission recognizes this, and intends to provide an opportunity to address concerns about conflicts, gaps, or the need for other adjustments as the need arises.

As to the specific proposals, some are concerned that the approach the Commission has adopted with respect to notices, public participation, and Commission review either is not consistent with due process considerations or does not make clear that the Commission intends to honor pertinent requirements. See, for example, Valpak Comments, September 24, 2007, at 3-16 and 20-27; Medco Comments, September 24, 2007, at 4-10; OCA Comments, September 24, 2007, at 12-15, and APWU Comments, September 25, 2007, at 1-4. In brief, the Commission believes that the rules, as proposed, are consistent with pertinent due process considerations. However, it appears that there are several areas where improvements can be made to make the Commission's intentions more clear, without imposing undue burden on the Postal Service or the Commission or compromising the PAEA's new regulatory approach. Accordingly, the Commission reconsiders its approach to several matters and revises or clarifies affected rules to reflect this decision. The Commission provides a single discussion of the matter here.

2. The Role of the Administrative Procedure Act

As the Commission has noted in Order No. 26, there is a tension in the PAEA between its goals of facilitating rapid and flexible adjustments to rates and classifications, and increasing the transparency and accountability of those processes.3 The regulations that the Commission proposed to govern Postal Service notices of rate adjustment for market dominant products, as well as changes to the Mail Classification Schedule, were intended to afford opportunities for public participation that meet the basic guarantees of public participation provided for by the PAEA and the Administrative Procedure Act (APA) (chapter 5 of title 5 of the United States Code), either explicitly or implicitly.

3 SeePRC Order No. 26, ¶¶ 3070, 3074. This tension is readily apparent from 39 U.S.C. 3622(b)(6), which simultaneously calls for reducing the administrative burden and increasing transparency relative to the system that prevailed under the Postal Reorganization Act.

With respect to Type 1 rate adjustments, the essential features of the proposed regulations were requirements that the public receive notice of the proposed rate adjustment from both the Postal Service and the Commission (proposed rule 3010.10(a)), a 20-day period for public comment (proposed rule 3010.13(a)), and a 14-day period for the Commission to evaluate the consistency of the rates proposed with the relevant requirements of the PAEA and issue its findings (proposed rule 3010.13(c)).

Applicability of the APA. Medco concludes that Commission orders that determine the status of the Postal Service's rate proposals are “rulemakings” subject to section 553 of the APA.See5 U.S.C. 553. It argues that rate adjustments provided for in the PAEA fall unambiguously within the applicable definition of a rule for purposes of the APA, citing 5 U.S.C. 551(4):

`[R]ule' means the whole or part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy * * * and includes the approval or prescription for the future of rates. * * *

Medco Comments, September 24, 2007, at 5.

Consequently, Medco notes, Commission review of rate adjustments, such as those provided for in 39 U.S.C. 3622(d)(1)(C)(ii), is informal “rulemaking” that is subject to the notice and comment requirements of 5 U.S.C. 553 of the APA.Id.

Because a “rule” can be of either “general or particular applicability,” the definition covers the adjustments that the Postal Service might propose to both Type 1 (general) and Type 2 (NSA) rates. Section 503 of title 39 authorizes the Commission to make such rules as are “necessary and proper” to carry out its duties. That section states that Commission rules, are “subject to chapters 5 and 7 of title 5.” (Section 553 of the APA is placed within chapter 5 of title 5.) Medco citesNational Easter Seal Societyv.USPS, 656 F.2d 754, 767 (D.C. Cir. 1981) as confirming this interpretation of what is now 39 U.S.C. 503. Because Commission orders that determine the status of postal rates are “rules,” and are subject to the requirements of 5 U.S.C. 553, Medco explains, Commission review of the Postal Service's rate adjustment proposals must satisfy the notice and public comment requirements of section 553.Id., at 3.

5 U.S.C. 553 requires that an gency:

(1) Publish notice of the proposed rule in theFederal Register, and that it include “either the terms or substance of the proposed rule or a description of the subjects and issues involved”;

(2) “[G]ive interested persons an opportunity to participate in the rulemaking through submission of written data, views, or arguments * * *”;

(3) Consider “the relevant matter presented”; and

(4) “[I]ncorporate in the rules adopted a concise general statement of their basis and purpose.”

Medco emphasizes that complying with these section 553 obligations is mandatory unless an exception can be shown to apply.Id. at 7.

The public notice requirements of section 553. With respect to Type 1 notices of rate adjustment, Order No. 26 proposed that the Commission “publish notice of the [Postal Service rate adjustment filing] in theFederal Register” and “post the filing on its Website.”Seeproposed rule 3010.13(a)(1). The Commission intended that consistent with existing rule 3001.17(d), APA notice requirements would be satisfied.4 This pattern was followed in the remainder of the rules proposed in Order No. 26 that address various forms of pre-implementation review by the Commission. Valpak asserts that this set of notice requirements would not have satisfied section 553 of the APA because the proposed rules did not expressly require that they include the terms of the proposal (e.g., proposed rates) or any supporting detail. Valpak Reply Comments, October 9, 2007, at 9.

4Order No. 26 also proposed that the Postal Service “[p]rovide public notice in a manner reasonably designed to inform the mailing community and the general public that it intends to change rates. * * *”Seeproposed rule 3010.10(a)(1). This is designed to fulfill the requirement of section 3622(d)(1)(C) of the PAEA.

Although the Commission fully expected to issue notices that complied with the content requirement of section 553, it accepts that uncertainty is diminished by specifying this intention in every applicable regulation. The Commission revises its proposed regulations governing public notices to explicitly include the categories of information that section 553 requires. Under the final rules, the public can be assured that such notices will contain summaries of the Postal Service's proposed rate and classification-related changes in sufficient detail to satisfy the notice requirements of the APA.Seefinal rules 3010.13(a), 3010.44(a), 3010.65(a), 3020.33, 3020.53, and 3020.73.5

5No party contested notice applicable to competitive products.

The public comment requirements of 5 U.S.C. 553. The regulations proposed in Order No. 26 would have allowed the public 20 days from the filing of a proposed Type 1 rate adjustment to comment on whether the proposed ratescomply with the rate cap provisions of the Commission's proposed rules and whether they comply “with the policies of 39 U.S.C. 3622.”Seeproposed rule 3010.13(b)(2). The regulations proposed in Order No. 26 did not specifically provide for public comment on proposed Type 2 rate adjustments.Seeproposed rule 3010.41.

Commenters' positions. Some commenters argue that the regulations proposed in Order No. 26 provided opportunities for public comment during the pre-implementation period that went beyond what the PAEA intended. Advo Reply Comments, October 9, 2007, at 3; DFS Comments, September 24, 2007, at 2-4; and PostCom Comments, September 24, 2007, at 1-3. Another group of commenters argued that these opportunities were inadequate to honor the PAEA's directive to increase transparency and accountability in the rate-setting process, and inadequate to satisfy even the minimum requirements of the APA. APWU Reply Comments, October 9, 2007, at 1-2; Medco Comments, September 24, 2007, at 2-5; McGraw-Hill Reply Comments, October 9, 2007, at 4-5; NAA Reply Comments, October 9, 2007, at 1-5; OCA Reply Comments, October 9, 2007, at 3-4; Valpak Comments, September 24, 2007, at 2-16, 20-23; and Valpak Reply Comments, October 9, 2007, at 1-34.

Advo argues that Congress did not contemplate, and the Commission should not allow, any public input prior to implementation of the Type 1 or Type 2 rates. It points out the PAEA provides for public comment during pre-implementation review of proposed Type 3 rates (those prompted by “extraordinary” circumstances), but makes no mention of them in the context of pre-implementation review of Type 1 and Type 2 rates. From this Advo infers that Congress meant to prohibit public participation in pre-implementation review wherever it did not expressly require it. Advo Reply Comments, October 9, 2007, at 1-3.

DFS contends that no issues may be commented upon or considered by the Commission at the pre-implementation stage except compliance with the rate cap. It takes the view that the objectives and factors governing postal rate setting set out in section 3622(b) and (c) are relevant only to the process by which the Commission designs a “modern system of ratemaking” for market dominant products. DFS Reply Comments, October 9, 2007, at 5-7.

PostCom and the Postal Service offer another rationale for reaching the conclusion that public comment on any compliance issue other than the rate cap at the pre-implementation stage conflicts with the PAEA. They argue that the scope of pre-implementation review is necessarily limited by the changed role that the Commission plays in rate setting under the PAEA. They assert that it is the role of the Postal Service rather than the Commission to balance the elaborate list of largely qualitative objectives and factors that apply to the modern system of ratemaking when proposing changes in rates. They contend that Commission review is relevant only where a clear violation of one of those objectives or factors can be demonstrated. They argue that the rate cap is the only section 3622 requirement that is concrete and objective enough to be susceptible to such a finding. Therefore, in their view, compliance with the cap is the only issue upon which public comment might be relevant to Commission review.

They emphasize that the rate-setting apparatus described in 39 U.S.C. 3622(d) focuses on the rate cap and its administrative details. In particular, they note that section 3622(d) provides for a feedback mechanism to resolve only the issue of non-compliance with the rate cap. This supports the conclusion that Congress intended the rate cap and its administration to be the only concern of pre-implementation review. PostCom Reply Comments, October 9, 2007, at 1-3; and Postal Service Reply Comments, October 9, 2007, at 14-17. A number of other commenters agree that pre-implementation public comment and Commission review should be confined to the issue of rate cap compliance.SeeANM/MPA Comments, September 24, 2007, at 2; NPPC Comments, September 24, 2007, at 2; Pitney Bowes Comments, September 24, 2007, at 7-8; and Time Warner Comments, September 24, 2007, at 4-5.

Another group of commenters take the opposing position, namely that failing to provide an opportunity for public comment before rate or classification changes take effect, or restricting the scope of the issues that such comments may address, undermines the PAEA's objective of increasing the transparency and accountability of the rate-setting system (see3622(b)(6)) and violates section 553 of the APA.6 They note that section 553(c) requires an agency to allow interested persons to “participate” in substantive rulemakings by submitting “written data, views, or arguments * * *” They note that section 553(c) also requires an agency order adopting a rule to include “ `a concise general statement of the basis and purpose”' after considering the “ `relevant matter”' that has been presented in the course of the rulemaking. Medco Comments, September 24, 2007, at 3. These commenters acknowledge that in addressing pre-implementation procedures in 39 U.S.C. 3622(d), the PAEA emphasizes compliance with the rate cap. But, they point out, there is no language in section 3622(d) or elsewhere in chapter 36 that excludes broader pre-implementation review by the Commission. Therefore, they argue, there is no legal ground for excluding either the objectives and factors listed in section 3622, or the general policy provisions of title 39, from pre-implementation review. Valpak Reply Comments, October 9, 2007, at 12, 20; Medco Comments, September 24, 2007, at 7; and McGraw-Hill Reply Comments, October 9, 2007, at 5.

6 See generallyMedco and Valpak comments, and the reply comments of McGraw-Hill, NAA, the OCA, and Valpak.

These commenters also acknowledge that expedition and flexibility in rate setting are among the PAEA's goals, and that the Commission has a good deal of discretion to set priorities with respect to which compliance issues it will focus on in the limited time it has set aside for pre-implementation review. They contend, however, that prohibiting public comment outright on statutory policies, objectives, and standards that would be affected by the rates under Commission review would not allow some compliance issues to be evaluated by APA mandated procedures. This, they suggest, would have the effect of selectively reading section 503 of title 39 (which subjects substantive Commission orders to the requirements of the APA) out of the statute.SeeMedco Comments, September 24, 2007, at 4-5, 7.

It is certain, Medco and others argue, that barring public comment altogether before adopting a substantive rule violates the notice and comment guarantee of section 553 of the APA. They note that regulations proposed in Order No. 26 do not explicitly assure an opportunity for public comment with respect to amended notices of Type 1 rate adjustments, all Type 2 rate adjustments, and significant classification changes that do not require amendments to the market dominant and competitive product lists. They argue that deferring consideration of the public's views to variouspost hocforms such as the Commission's annual compliance report required by 39 U.S.C. 3653 or a complaint filed under 3662 does not preserve the interests protected by 5 U.S.C. 553. Those interests includethe chance for the public to be heard before a rule has been finalized when its comments are more likely to influence the agency's rule.SeeValpak Reply Comments, October 9, 2007, at 6, 7, and 16.

Commission analysis. The tension between the groups interpreting the PAEA as mandating little, if any, pre-implementation review of proposed changes in postal rates and classes, and those interpreting it as requiring that all issues be reviewable prior to implementation, is clear. It is equally clear that the Commission can interpret its responsibilities in a way that reconciles the flexibility and expedition that the PAEA requires with the public participation guarantees of the APA.

A statute should be construed “so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant.”Pennsylvania Medical Societyv.Snider, 29 F.3d 886, 895 (3d Cir. 1994). The court observed inCitizens to Save Spencer Countyv.EPA:

[i]f inconsistent provisions point generally in a common direction, it is the task of an agency with requisite authority to pursue a middle course that vitiates neither provision but implements to the fullest extent possible directives of each, * * *

600 F.2d 844, 870 (D.C. Cir. 1979). This is particularly true if a construction can be found that will give force to and preserve all the provisions of the statute.FDAv.Brown and Williamson Tobacco Corp., 529 U.S. 120, 133 (2000). Accordingly, the Commission reconciles those provisions of the PAEA that promote flexible and expedited rate setting with those that foster transparent and accountable rate setting.

To do this, it helps to clearly identify the statutory purposes that need to be reconciled. The Commission concludes that one of Congress's main motives in enacting the PAEA was to simplify and expedite the setting of postal rates. It further concludes that Congress intended to give the Postal Service wide latitude in designing specific rates and rate relationships, expecting that the Commission would alter those decisions only where disregard of particular statutory standards is clear. Consequently, the Commission now plays a different role in reviewing proposed rates prior to their implementation than it has in the past.

The Commission also concludes that Congress expected that a modern system for regulating rates and classes would afford the public and the Commission only a limited period of pre-implementation comment and review. This finding is supported primarily by the 45-day period of advance notice of proposed changes in rates that is referenced in section 3622(d)(1)(C). This provision indicates that Congress viewed 45 days as an adequate review period for the compliance issues that would be raised prior to implementing new rates. This implies that the pre-implementation issues with which Congress expected the Commission to deal would be few enough, or the level of scrutiny would be light enough, to allow the Commission to evaluate them adequately within 45 days. The inference is strong that Congress contemplated that complicated or subjective compliance issues would be addressed during the annual compliance review, or through the complaint procedures of section 3662.

Even though Congress intended limited pre-implementation review of postal rate changes, it must be presumed that Congress was aware of 5 U.S.C. 553 and the limits it sets on the extent to which public participation can be deferred until after a rule is finalized. That APA provision is designed to ensure that the opinion of those whose interests will be affected by an agency's rules will be heard before a rule is finalized, not after. Courts have emphasized the distinction:

The EPA overlooks, however, the crucial difference between comments before and after rule promulgation. Section 553 is designed to insure that [parties affected by an agency decision] have an opportunity to participate in and influence agency decision-making at an early stage, when the agency is more likely to give real consideration to alternative ideas.

United States Steel Corp.v.EPA,595 F.2d 207, 214 (5th Cir. 1979), rehearing granted 598 F.2d 915.7

7 See also, City of New Yorkv.Diamond,379 F. Supp. 503, 517 (S.D.N.Y. 1974) (“Permitting the submission of views after the effective date is no substitute for the right of interested persons to make their views known to the agency in time to influence the rule making process in a meaningful way * * *”).Accord, Marylandv.EPA,215, 222 (4th Cir. 1975); vacated on other groundssub nom. EPAv.Brown,431 U.S. 99 (1977).

The Commission notes that neither the PAEA nor its legislative history explicitly define the scope of public input or Commission review of proposed rates prior to their implementation. It concludes that the weight of the inferences that may be drawn from the provisions of the PAEA itself indicate that Congress intended to leave room for Commission discretion in determining the degree of public input that would be afforded in the pre-implementation period, the form that it should take, and what priority the Commission would give to evaluating the public input that it decided to elicit. Given this, the most likely and most reasonable assumption is that Congress expected the Commission to give as much consideration as it could to the issues most capable of resolution in the brief period that the PAEA provides, without violating the minimum guarantees that 5 U.S.C. 553 provides.

The Commission can give close scrutiny to only a limited number of compliance issues in the time available before rate changes are implemented, but it can not always predict in advance precisely which issues will be of highest priority. In recognition of that fact, the final rules adopted by the Commission require the Postal Service to address a broad range of relevant issues in any notice of rate adjustment, but clarify that the Commission focus must be primarily on the requirements of 39 U.S.C. chapter 36, subchapter 1. See final rules 3010.13 and 3010.14.8

8Within the 45-day period contemplated for pre-implementation review, the Commission is likely to be able to scrutinize and reach definitive conclusions on compliance issues that are factually clear and straightforward-such as rate cap compliance, or compliance with formulas for calculating preferred rates. Commission review of more complex or nuanced issues within that timeframe is likely to be somewhat less thorough, and any conclusions that it reaches are likely to be of a preliminary nature. For that reason, final rule 3010.13(j) distinguishes between the effect of the Commission's pre-implementation findings concerning formula-determined caps and rates, and other issues. The Commission will treat its findings concerning the former as decided on the merits for purposes of subsequent proceedings, but will not attach comparable presumptions to findings concerning the consistency of a proposed change with complex or subjective policy factors. Final rule 3010.13(j) responds to a suggestion by GCA that this dichotomy be reflected in the Commission's rules.SeeGCA Comments, September 24, 2007, at 5-6.

PRC Order No. 26, ¶ 2029 commented that the Commission would not entertain comments on costing methodology during the pre-implementation period. Valpak and NNA infer from this that the Commission proposed to prohibit public comments from discussing any issue that involves attributable costs. Valpak Comments, September 24, 2007, at 5; Valpak Reply Comments, October 9, 2007, at 29-34; and NNA Comments, September 24, 2007, at 8. Valpak argues that the requirement that classes and services cover their attributable costs remains a requirement of the PAEA (see39 U.S.C. 3622(c)(2)), just as it was under the Postal Reorganization Act. Valpak goes on to identify more than a dozen basic policies, objectives, and factors in title 39 that have no force unless attributable cost levels for the various classes and services are known. Valpak argues that it is inconsistent for the rules proposed in Order No. 26 toallow comments of section 3622 requirements generally in the pre-implementation review period, but single out costs for exclusion from consideration.

The comment in Order No. 26 of which Valpak and NNA complain may not have been adequately explained. The merits of one attribution methodology relative to another is an example of an issue that is too complex to be re-evaluated in a pre-implementation context. Cost attribution methods should be reviewed in other rulemaking proceedings. Whether rates properly reflect costs will be judged using the most recently approved attribution methodologies.

Final rule 3010.13 retains the 20-day period for public comment proposed in Order No. 26. Some commenters complain that Order No. 26 did not analyze the adequacy of this amount of time to afford a meaningful opportunity to respond to the issues that proposed rates might raise, as 5 U.S.C. 553 requires. Medco Comments, September 24, 2007, at 8; and Valpak Reply Comments, October 9, 2007, at 12. The adequacy of the 20-day comment period must be viewed in the context of the PAEA's goals. Major goals are to simplify and expedite the process by which rates are adjusted. Routinely enlarging the public comment period would reduce the time available to the Commission to evaluate the comments received, if it is to provide the expedition that Congress contemplated. Twenty days should be adequate to allow interested persons to identify and explain perceived failures to conform to the statutory requirements.

Type 1 and Type 2 rate adjustments compared.The notice and comment guarantees of section 553 of the APA apply to both Type 1 and Type 2 rate adjustments. The Commission's final rules, however, still distinguish between Type 1 and Type 2 review. Where the scope of public comments and Commission orders addressing Type 1 rate adjustments primarily focus on the requirements of 39 U.S.C. 3622(d), the scope of comments and orders addressing Type 2 rate adjustments focus on compliance with the requirements of 39 U.S.C. 3622(c)(10).

Similarly, where the period for public comments addressing Type 1 rate adjustments is 20 days from the Postal Service's filing, the period for public comments addressing Type 2 adjustments is 10 days from the Postal Service's filing. This reflects the narrower potential compliance issues that Type 2 rate adjustments raise, and a lesser need for review for such adjustments.Comparefinal rule 3010.13(c) with final rule 3010.44.

Implementation dates under the APA.Section 553(d) of the APA states that:

The required publication or service of a substantive rule shall be made not less than 30 days before its effective date, except—

[A] substantive rule which grants or recognizes an exemption or relieves a restriction;

[I]nterpretative rules and statements of policy; or

[A]s otherwise provided by the agency for good cause found and published with the rule.

If one were to add the 20-day comment period to the 14-day period that the Commission will allow itself for issuing an order regarding a proposed rate adjustment, and add a 30-day waiting period before the order could take effect, the total number of days required before a proposed rate adjustment could take effect would exceed the 45 day pre-implementation period provided for in section 3622(d)(1)(C). Recognizing this possibility, DFS urges the Commission to routinely accompany its rate adjustment orders with findings that there is good cause to waive the 30-day waiting period. It argues that the Commission could base its finding of good cause on the generalized notion that the PAEA puts a high priority on allowing the Postal Service to change rates quickly. DFS Reply Comments, October 9, 2007, at 4.

Finding good cause, however, requires a showing that a 30-day waiting period is either “impractical, unnecessary, or contrary to the public interest.” It is essentially an emergency procedure.See Buschmannv.Schweiker,676 F.2d 352, 357 (9th Cir. 1982).9 Since the purpose of the section 553(d) waiting period is “to give affected parties a reasonable time to adjust their behavior before the final rule takes effect” (Omnipointv.FCC,78 F.3d 620, 630 (D.C. Cir. 1981)), it usually requires an analysis of specific interests that will be hurt and those that will be helped by waiver of the waiting period.See, for example, American Bankers Associationv.National Credit Union Administration,38 F. Supp. 2d 114, 139,140 (D.D.C. 1999);Buschmannv.Schweiker. Id.Accordingly, it would seem problematic for the Commission to require itself, by rule, to routinely determine that the factual circumstances surrounding a rate adjustment support a finding of “good cause” for waiver. The Commission properly will consider such a finding on a case-by-case basis.

9The need to meet tight statutory deadlines has been rejected as a justification for waiving the waiting period requirement.U.S. Steel Corp.v.EPA,595 F.2d 207, 214 (5th Cir. 1979).

Classification issues and the APA.Several commenters criticize the rules proposed in Order No. 26 for failing to explicitly provide notice and public comment opportunities before changes in the Mail Classification Schedule are put into effect. They note the Commission's proposed rules allow for public comment before the Mail Classification Schedule is adopted, but make no provision for notice or public comment for major classification changes unless they involve amendments to the lists of market dominant or competitive products that the Commission is required to maintain under 39 U.S.C. 3642.Seeproposed rules 3020.33, 3020.53, and 3020.73. This, they contend, violates the notice and comment guarantees of section 553 of the APA. They also note that Order No. 26 proposed rules that would require 15 days' notice from the Postal Service prior to “updating” product descriptions in the Mail Classification Schedule, but would not have provided an opportunity for public comment on these changes.Seeproposed rules 3020.90et seq.They contend that major classification changes can potentially be imposed through such updates. Medco Comments, September 24, 2007, at 9-10; OCA Comments, September 24, 2007, at 15-17; McGraw-Hill Reply Comments, October 9, 2007, at 2-3; and Valpak Comments, September 24, 2007, at 4, 15-16.

The Commission does not contemplate engaging in pre-implementation review of the merits of any classification change. However, to preserve Postal Service flexibility yet provide assurance that the Postal Service will not misuse the system for correcting the Mail Classification Schedule, additional opportunity for mailer comment is provided in the final rules. The Postal Service notices of planned classification changes will be posted on the Commission Web site and interested persons will be afforded the opportunity to comment.Seechapter IV-B and rules 3020.91 through 3020.93.

3. Transparency Concerns

Several commenters assert that the rules proposed in Order No. 26 are inadequate to preserve, let alone increase, the transparency and accountability of postal rate setting under the PAEA relative to the regulatory regime under the Postal Reorganization Act. They make this assertion, in large part, because the Commission has not published proposed rules specifying theinformation that the Postal Service will be required to provide to the Commission as part of its periodic reporting under 39 U.S.C. 3652, and the information and issues that will be covered by the Commission's annual compliance report under 39 U.S.C. 3653.See,for example, Valpak Comments, September 24, 2007, at 6; and Valpak Reply Comments, October 9, 2007, at 4. NAA observes that:

[I]t is difficult to comment on * * * the proposed ratesetting rules without an understanding of how the Commission envisions the interplay between annual reporting requirements, the data submissions required to support notices of rate adjustments, and the respective roles of the reporting requirements and the complaint process.

NAA Comments, September 24, 2007, at 13.

The Commission anticipates issuing proposed rules soon after the close of this docket that specify the information that the Postal Service will provide in its periodic reporting under section 3652 to facilitate preparation of the annual compliance report that the Commission will provide pursuant to section 3653. Interested persons will have ample opportunity to identify the types of information that will best inform the Commission and the public, and assure the level of accountability and transparency contemplated by the PAEA. Data from the Postal Service's periodic reports under section 3652 will be available and provide the basis for pre-implementation analysis of the Postal Service's proposed rate adjustments, and will inform any complaints that might be filed by the public. The Commission is optimistic that the combination of pre-implementation review of rate changes, periodic reporting by the Postal Service, annual compliance reports by the Commission, and the complaint mechanism, all supported by the Commission's subpoena power, will serve to increase the level of transparency and accountability of postal rate setting under the PAEA relative to that which prevailed under the prior regulatory regime.

Ex parte communications. In PRC Order No. 26, ¶ 2026, the Commission remarked that:

[t]he Commission does not propose formal discovery, Notices of Inquiry, Presiding Officer's Information Requests, testimony, and hearings. It anticipates handling resolution of discrepancies or other matters through direct communication with the Postal Service.

Valpak criticizes these remarks, observing that:

PAEA-mandated transparency cannot be achieved by private communications, such as meetings or briefings held behind closed doors. Rather than achieving increased transparency, the result would be much-reduced transparency.

Valpak Comments, September 24, 2007, at 11-12.

Valpak misinterprets the Commission intentions for fact gathering during the pre-implementation review period. While the Commission does envision direct communications as an important method of promptly clarifying factual issues raised by the Postal Service's rate adjustment filings, it intends that the substance of those communications be made public in written memoranda placed in a public file. The Commission is aware that in formulating informal rules, which would include its orders determining compliance of proposed rate adjustments with the requirements of the PAEA, it must inform the public of the nature and substance of any exchanges with the Postal Service or other interested persons that address the merits of the proposed rate adjustment. The Commission anticipates issuing proposed rules regularizing ex parte procedures in the context of informal rulemakings soon after the conclusion of this docket. In the interim, if the Commission initiates ex parte communications concerning the merits of rate adjustment filings, including the accuracy of the data that support the filing, it will summarize the ex parte contact and place the summary in a public file shortly afterward.

4. Complaints

In the context of this rulemaking, several commenters have expressed their views on certain aspects of the complaint process. PostCom argues that the Commission should not hear complaints against proposed rates during the 45-day notice period before a CPI increase takes effect. PostCom also advocates limiting the hearing of complaints under section 205 of the PAEA to the time of the annual compliance review. PostCom acknowledges that the Commission will promulgate rules governing the complaint process in the near future, yet it believes that the Commission should “nevertheless take the opportunity in this proceeding to clarify this matter.” PostCom Comments, September 24, 2007, at 2;see alsoMOAA Reply Comments, October 5, 2007, at 2, n.1. Other commenters oppose PostCom's proposed limitations on the filing of complaints on the grounds that they would unduly prejudice mail users or that the proposed limitations are contrary to the PAEA. GCA Reply Comments, October 9, 2007, at 2-5; NAA Reply Comments, October 9, 2007, at 10-13.

NAA argues that the Commission should provide for expedited consideration of post-implementation complaints that allege a failure to meet the statutory conditions of 39 U.S.C. 3622(c)(10). Several commenters contend that (1) the standard for setting a complaint for proceedings should be construed generously, and (2) an expeditious complaint procedure should be adopted.10 Other commenters believe that the complaint procedures are outside the scope of this rulemaking and these issues should be deferred to another rulemaking.11

10GCA Comments, September 24, 2007, at 2-5(incorporating by reference: GCA Comments, April 6, 2007; Joint Comments of ABM, GCA, and NAA, April 6, 2007; GCA Reply Comments, May 7, 2007; ABM, GCA, NAA, and NNA Joint Reply Comments, May 7, 2007);see alsoNAA Comments, September 24, 2007, at 11-12.

11ANM and MPA Reply Comments, October 9, 2007,at 11; Advo Reply Comments, October 9, 2007, at 10.

These comments on the complaint process raise important policy considerations. They are, nonetheless, beyond the scope of this current rulemaking proceeding. The Commission does not find it appropriate in this proceeding to make any pronouncements on certain isolated aspects of the complaint process. The Commission will shortly initiate a separate rulemaking to consider modifications to the existing rules governing complaints,see39 CFR 3001.81et seq., during which all interested persons can address all such issues. The Commission believes that the best way to make important policy decisions regarding the complaint process is by dealing with all complaint related issues together on a comprehensive basis.

In its comments, GCA asks the Commission to make it the “next item of business to propose and enact appropriate rules governing the complaint process * * *” GCA Comments, September 24, 2007, at 5. Another commenter echoes this plea.SeeValpak Comments, September 24, 2007, at 6-7. The Commission acknowledges that the complaint process is of great importance to the PAEA's statutory scheme and will shortly issue proposed rules for public comment.

5. Other Considerations

Free Press andThe Nation,in joint comments, raise concerns about the impact of the Commission's proposed implementation of a new ratemaking system on Periodicals. They say theystrongly reject the notion that the Commission should take a “light-handed” approach in pursuit of values “held by the American people that are embodied in a free press that cultivates new ideas and fosters a robust political debate.” Free Press andThe NationComments, September 25, 2007, at 1-2. They urge that Periodicals be considered very carefully and that rate setting reflect the unique character of publications in this subclass and their contribution to the nation. They propose that the Commission reincorporate these values into its 2.12 They also provide a summary of views on Docket No. R2006-1 to demonstrate why the Commission should “inject historical, democratic values back into its current work.” 2-3. This summary makes clear that they consider the outcome, for Periodicals, a reversal of public policy.

12Dow Jones opposes any revision of the rulesbased on the comments of Free Press andThe Nation.It notes: “There is no place in postal ratemaking to ignore proper cost-attribution, for otherwise, inefficiencies will be encouraged, not discouraged.” Dow Jones Reply Comments, October 4, 2007, at 3.

Free Press andThe Nationdo not propose specific revision to the proposed rules. The Commission does not revise the rules to effect any additional preferences for Periodicals. The Commission notes that the regulatory calendar should provide publishers and other mailers with an increased degree of certainty about when changes will occur. Similarly, the annual limitation on rate increases should provide insulation from rate shock.

B. Basic Framework for Rules on Market Dominant Products

No commenter takes issue with the organizational structure the Commission has proposed for rules on market dominant products. The Commission has reviewed that structure, and finds it appropriate to adopt this framework without change; however, it makes two minor editorial revisions. One is a change in the caption of part 3010 from “Rules Applicable to Rate Adjustments for Market Dominant Products” to “Regulation of Rates for Market Dominant Products.” The other is a change in the caption of subpart B.13 This entails revising the reference to “Type 1” to the more inclusive and descriptive reference to “Type 1-A and 1-B.” The intention is to make it readily apparent from a reading of the caption that the text addresses both types of filings.

13Two commenters address other potential changesin terminology. NPMHU takes issue with the Commission's use of the term “exigent.” NPMHU Comments, September 24, 2007, at 8-10. MOAA notes that the Service's use of “customized agreement” may be more accurate than “negotiated service agreement.” MOAA Reply Comments, October 5, 2007, at 2. The Commission generally finds these points well taken, but retains the terms used in the proposed rules. They lack precision, but have met with wide acceptance in the postal community.

Accordingly, part 3010, organized into five subparts, houses the text of the final rules regulating rates for market dominant products. The Commission emphasizes that although the overall organization remains the same at the part and subpart level, the number, designation, and text within the five subparts differ in some respects from the proposal, based on revisions associated with comments, Commission decisions, or on publication requirements. For example, in subpart C as adopted, a new rule 3010.29 is added to address transitional filings. This change, and others, are identified and discussed within.

Based on the foregoing considerations, the Commission adopts the following organization and captions for the final set of regulations on market dominant products in its final rules:

Part 3010—Regulation of Rates for Market Dominant Products Subpart A—General Provisions Subpart B—Rules for Rate Adjustments for Rates of General Applicability (Type 1-A and 1-B Rate Adjustments) Subpart C—Rules for Applying the Price Cap Subpart D—Rules for Rate Adjustments for Negotiated Service Agreements (Type 2 Rate Adjustments) Subpart E—Rules for Rate Adjustments in Exigent Circumstances (Type 3 Rate Adjustments) C. Subpart A—General Provisions 1. Overview

Subpart A, as originally proposed, consists of a set of seven general provisions. These provisions include a standard statement (in rule 3010.1) noting that the rules in this subpart implement provisions in the PAEA related to market dominant products. They also provide that advance notice-and-review period for planned rate adjustments consists of a minimum of 45 days for adjustments other than those based on an exigency. They establish that exigency-based rate adjustments require the Postal Service to file a formal request with the Commission and state that they entail special procedures.

There is more detailed development of these general points in subsequent rules.

2. Issues

Rule 3010.1.In Order No. 26, the Commission said that the crux of the debate that had emerged over the length of time for Commission review was whether 45 days constitutes the statutory maximum or minimum. It noted that the Postal Service interpreted the language in the statute as establishing a maximum, but also had acknowledged that some changes, as a matter of good business practice, will entail considerable implementation, and that it intended to provide additional notice in these instances. PRC Order No. 26, ¶¶ 2019-21. Some commenters viewed the wording in the statute as establishing an absolute minimum, and therefore clearly authorizing the Commission to explicitly require the Postal Service to provide more notice.

The Commission concluded that the appropriate way to implement the PAEA was to require that the Postal Service provide notice of rate adjustments no later than 45 days before the intended implementation date. Rule 3010.1, as proposed, reflects this assessment.

Commenters' positions.Most commenters addressing this point agree with or accept the Commission's disposition.14 Some, however, continue to express concerns about the impact of a short notice period on adjustments on mailers. The NPPC, for example, emphasizes “that the minimum notice period needed for mailers and third-party vendors toimplementrate changes will often be considerably longer, particularly when classification changes require substantial rewriting of software.” NPPC Comments, September 24, 2007, at 5. (Emphasis in original.) Similarly, MMA considers the Postal Service's promised 90 days' notice insufficient, given implementation requirements. MMA Comments, September 24, 2007, at 5. It suggests addressing this problem by limiting index and exigent rate adjustments to rate changes, and not permitting other changes, such as new mail preparation requirements and transportation requirements, to be part of the 6.

14NNA suggests consideration be given to requiring notice in public media. NNA Comments, September 24, 2007, at 5-6.

Commission analysis; final rule.The Commission agrees that both the 45 days provided in the rule and the 90 days' notice the Postal Service intends to issue allows only a brief period forassessing the Postal Service's notice and implementing the changes, but continues to believe that the proposed approach comports with the statutory language and strikes an appropriate initial balance between Postal Service flexibility and Commission review responsibilities. The Commission appreciates mailers' concerns in this regard, but considers revisions that would explicitly extend the period inappropriate at this time as they would reduce the flexibility the PAEA intends the Postal Service to have. Thus, MMA's suggestion is not accepted, although minor changes to improve clarity are made.

Rules 3010.2 through 3010.6.This series of rules codify “type” and address general aspects of the PAEA-authorized scenarios for addressing rate changes for market dominant products. As explained in Order No. 26, the rationale for assigning types to the various scenarios is to facilitate future reporting and general discussion, and the proposal generally tracks an approach that has been successfully employed for filing library references since Docket No. RM98-2. PRC Order No. 26, ¶ 2017.

Suggested revisions.No commenter takes issue with the overall approach in this series. However, OCA suggests, in the nature of a clarification, that the Commission revise rule 3010.2(b) by adding references to “service” and “by class of service.” It suggests the inclusion of similar references in other rules for consistency.15 OCA Comments, September 24, 2007, at 23-24. The Commission does not find that this clarification will assist administration of the new ratemaking process.

15OCA identifies the following rules as candidates for similar treatment: rules 3010.3(a); 3010.4(a) and (b); 3010.11(b); 3010.14(b)(4); 3010.26(b); 3010.27; 3010.28; and 3010.63(a) and (b).Id.

Commenters propose two revisions in proposed rule 3010.4. The Postal Service points out that the reference to “a rate” in the second sentence of paragragh (a) of this section is not consistent with the language in the relevant provision in the PAEA. It suggests that substituting the phrase “an increase for the class” for the original wording would achieve this consistency. In addition, DMA expresses concern that the Commission has not adequately addressed the limit on application of unused rate authority for Type 1-B adjustments filed within 12 months of each other, and suggests adding language that clarifies this point. DMA Comments, September 24, 2007, at 3. The Postal Service considers this concern adequately addressed by operation of rule 3010.7. Postal Service Reply Comments, October 9, 2007, at 40.

Commission analysis; final rule.The Commission finds proposed rules 3010.2 and 3010.3 achieve their intended objective and adopts them without change. The Commission finds that several revisions to rule 3010.4 are warranted, based on commenters' observations. One simply reflects redesignation of proposed paragraph (b) as final paragraph (c) to accommodate a new provision. The other revisions are substantive. The first adopts the Postal Service's suggested revision to the second sentence of rule 3010.4(a). In final form, this now reads as follows: “A rate adjustment using unused rate adjustment authority may not result in an increase for the class that exceeds the applicable annual limitation plus 2 percentage points.” The second change, based on DMA's suggestion, entails the addition of a new paragraph (b), which reads as follows: “Type 1-B rate adjustments filed within 12 months of each other may not apply more than 2 percentage points of unused rate authority to any class.” The Commission adopts rule 3010.4 as revised and explained above.

The Commission adopts rule 3010.5 as proposed, without change, as no commenter took issue with it and it achieves the intended objective of providing a basic statement defining Type 2 rate adjustments.

Rule 3010.6: general information about Type 3 proceedings.This provision consists of three paragraphs. The text provides in general terms for public participation in Type 3 cases and Commission review in 90 days. Subpart E addresses Type 3 requests in considerably more detail.

Suggested revisions.OCA proposes revision of proposed rule 3010.6(c) to address its due process concerns and consistency with the PAEA. It suggests adding an explicit reference to notice and an opportunity for a public hearing and comment. OCA Comments, September 24, 2007, at 24-25.

Commission analysis; final rule.The Commission is revising other rules in subpart E of part 3010 to make clear its intentions with respect to due process. As this rule is only a general statement, the Commission does not find that OCA's proposed revision, even if modified to reflect the Commission's approach, appropriate. Accordingly, it adopts proposed rule 3010.6 without change.

Rule 3010.7.This proposed rule consists of six paragraphs addressing the regulatory calendar, which the Commission refers to as a schedule in the rules. The text provides, among other things, for development, maintenance and posting of the calendar.

Suggested revisions.The Commission's proposed treatment of issues related to the regulatory calendar did not generate proposals for revisions, but Valpak expresses a concern about how exigent requests will mesh with the regulatory calendar and poses several potential scenarios. Valpak Comments, September 24, 2007, at 26-27.

Commission analysis; final rule.The Commission agrees that in the event of an exigent request, it is likely the points NNA usefully raises will need to be addressed. At the same time, the Commission notes that in the interest of getting a basic framework in place for the new system, it is not practical to attempt to address every eventuality. This is especially the case with respect to exigent requests, which the Commission (and presumably most others) hope does not materialize in the near future. Accordingly, it adopts proposed rule 3010.7 without change.

D. Subpart B—Rules for Rate Adjustments for Rates of General Applicability (Type 1-A and 1-B Rate Adjustments) 1. Overview

Subpart B, as proposed, consists of five sections covering basic matters related to Type 1-A and Type 1-B rate adjustments. There was no objection to the proposed organization of this set of rules; therefore, the Commission carries it over into the final rules.

2. Summary

The rules in this subpart, as proposed, reflect a broad range of considerations related to rate adjustments for Type 1-A and Type 1-B filings. These include, among others, the procedures to be followed by the Postal Service and the Commission (including each agency's notice requirements), the public's role, technical matters related to limits on adjustments, and the scope of Commission review. Several rules are affected by the Commission's decision on due process considerations. The impact mainly affects the text of rule 3010.13.

3. Issues

Rule 3010.10: procedures.This rule, as proposed, consists of two paragraphs that set out the basic procedures associated with Type 1-A and Type 1-B rate adjustments. Paragraph (a) establishes the minimum requirements regarding the timing and nature of notices of these two types of adjustments, as well as the filing thereofwith the Commission. The notice is to be provided in a manner reasonably designed to inform the mailing community and the general public that the Postal Service intends to change rates not later than 45 days prior to the intended implementation date. Transmission of a notice of rate adjustment to the Commission is also to occur no later than 45 days prior to the intended rate implementation date.

Paragraph (b) encourages the Postal Service to provide public notice and to submit its notice of rate adjustment as far in advance of the 45-day minimum as practicable, especially in instances where the intended price changes include classification changes or operations changes likely to have material impact on mailers.

Suggested revisions.McGraw-Hill suggests that the Commission should allow for an extension of the 45-day review period, of its own accord, or at the request of any interested party for good cause shown to the extent reasonably necessary under the circumstances. McGraw-Hill Comments, September 24, 2007, at 5.

Commission analysis; final rule.The Commission has considered