BEFORE THE
POSTAL REGULATORY COMMISSION
WASHINGTON, D.C. 20268-0001
Regulations Establishing System
Of Ratemaking
Postal Regulatory Commission
Submitted 9/24/2007 2:46:52 pm
Filing ID: 57630
Accepted 9/24/2007
Docket No. RM2007-1
COMMENTS OF THE
NEWSPAPER ASSOCIATION OF AMERICA
ON NOTICE OF PROPOSED RULEMAKING
(September 24, 2007)
The Newspaper Association of America (“NAA”) respectfully submits these
comments on the Commission’s Notice of Proposed Rulemaking1 to implement
the ratesetting provisions of the Postal Accountability and Enhancement Act of
2006 (“PAEA”).
NAA appreciates the significant effort that the Commission has invested
into developing the proposals in the NPRM, including the two Advance Notices of
Proposed Rulemaking and the series of public hearings around the nation. NAA
supports the basic framework of the regime for market-dominant products
outlined in the NPRM, and specifically endorses the proposed use of the “moving
average” methodology of calculating the price cap and the inclusion of public
comment on proposed rate changes. However, as noted below, in some
instances NAA respectfully believes that the proposed rules must be improved in
order to more closely adhere to the requirements of the PAEA.
1
Order No. 26 (Aug. 15, 2007), 72 Fed. Reg. 50744 (Sept. 4, 2007) (“NPRM”).
In particular, these comments will address the following:
I.
•
Improvements to the proposed rules governing special classifications,
including more effective review procedures, that are necessary to
prevent violations of the special statutory conditions for such
classifications; and
•
The need to clarify proposed Section 3100.13(b) to reflect the
importance of 39 U.S.C. § 403(c) in reviewing notices of general rate
adjustments.
THE PROPOSED RULES FOR NEGOTIATED SERVICES
AGREEMENTS NEED MODIFICATION TO ENABLE THE COMMISSION
TO MEET ITS STATUTORY RESPONSIBILITY TO PREVENT
UNLAWFUL NSAs
Subpart D of the proposed rules address negotiated service agreements,
which are “special classifications” under the PAEA. 39 U.S.C. § 3622(c)(10).
That provision of the PAEA, which is the sole statutory support for such special
arrangements for market-dominant products, authorizes the Commission to
consider as a factor in designing a modern rate system the desirability of:
. . . special classifications for both postal users and
the Postal Service in accordance with the policies of
this title, including agreements between the Postal
Service and postal users, when available on public
and reasonable terms to similarly situated mailers,
that (A) improve the net financial position of the Postal
Service through . . . increasing the overall contribution
to the institutional costs of the Postal Service; . . . ;
and (B) do not cause unreasonable harm to the
marketplace.”
This statutory language ratified the standard previously adopted by the
Commission by regulation, which provides:
it shall be the policy of the Commission to recommend
Negotiated Service Agreements that are consistent
with statutory criteria, and benefit the Postal Service,
without causing unreasonable harm to the
marketplace.
2
39 C.F.R. § 3001.190.
Thus, the plain language of the statute (and the Commission’s regulations
from which it derives) establishes specific, additional criteria for NSAs and other
special classifications that go beyond those applicable to general rate changes.
These criteria serve to ensure that other mailers and the marketplace in general
are not harmed by special deals for particular mailers. The PAEA does not
authorize any waiver of these criteria; they must be met fully in order for the
Commission even to consider the desirability of a special classification.
Accordingly, the Commission has a responsibility to protect the public
interest by ensuring that the Section 3622(c)(10) conditions are met. In crafting
regulations, the Commission must anticipate the possibility that some proposed
NSAs would, if implemented, fail to increase the net contribution to the Postal
Service’s institutional costs or could cause unreasonable harm to the
marketplace.2 Therefore, the procedural rules governing NSAs should be
sufficiently robust to identify those NSAs as quickly as practicable and to prevent
them from taking effect.
The Commission’s proposed rules take a step in the right direction by
rejecting the contention by some that NSAs should be allowed to take effect
without any prior review at all.3 They do so by requiring the Postal Service to file
a notice of agreement not later than 45 days prior to the intended implementation
date. Proposed 39 C.F.R. § 3100.41. The proposed rule would also require the
2
This could readily occur if, as some commenters have desired, the Postal Service enters
into NSAs more frequently in the future.
3
See MOAA Comments on 1st NPRM at 4-5; PSA Comments on 1st NPRM at 21.
3
notice of agreement to address a number of issues, including specifically the
conditions established by Section 3622(c)(10). See Proposed 39 C.F.R. §
3100.42.
Although the NPRM describes the proposed rules as a compromise that
provides flexibility in combination with accountability,4 the rules focus more on the
former than the latter by not clearly allowing for an effective prior review in
practice. In particular, the proposed rules as written do not ensure that the
Commission will obtain timely information that is potentially highly relevant to its
determination whether or not the specific statutory substantive criteria enacted by
Congress for special classifications, including NSAs, are met.
Also, the proposed rules would in effect relegate accountability to afterthe-fact review regardless of any apparent statutory violations in the interim.
That is a shortcoming that could prove especially significant in cases where an
NSA unreasonably causes severe, if not irreparable, harm to competition in the
market served by the NSA mailer, to the detriment of the general public. In
markets in which postal rates are a major factor, the competitive advantage
conferred by an NSA could be potent. Review of NSAs or other special
classifications after they have taken effect, or complaints challenging them, are
important remedies, but in some situations they will be of no real value to those
harmed. An after-the-fact process that will not grant relief until long after
unreasonable harm has occurred and competitors have suffered irreparable
4
NPRM at 39, ¶ 2087.
4
economic injury or been driven from business is not consistent with the statutory
ban on harmful NSAs.
In order to better assure compliance with statutory requirements, the
Commission should:
•
Revise the proposed rules explicitly to allow public comment on a
notice of agreement for an NSA, in recognition that non-parties to the
NSA may be better positioned than the Postal Service and NSA mailer
to evaluate compliance with statutory criteria, including the net revenue
and competitive harm provisions;
•
Revise the proposed rules to make explicit that it will deny, or delay
beyond the 45-day period pending further consideration, special
classifications where the notice of agreement or the comments present
a legitimate question regarding whether the arrangement, if
implemented, would violate statutory criteria; and
•
Should modify the proposed regulations to incorporate the statutorilymandated language regarding the availability of an NSA to a “similarlysituated” mailer.
These changes would better enable the Commission to assess the likelihood that
a proposed special classification would comply with the statute before it is
allowed to take effect.
A.
Public Comment Is Necessary To Enable The Commission To
Make An Informed Judgment On The Statutory Criteria
The Commission’s proposed rules specifically acknowledge the value of
public comment regarding general rate adjustments. Proposed 39 C.F.R. §
§3100.13(a). No similar provision expressly appears in the proposed procedures
for NSAs, although public notice would be required. The Commission should
make clear in its rules: (1) that the notice of an NSA agreement is itself a public
document, and (2) that interested persons may comment on whether a proposed
5
special classification, including an NSA, complies with the statutory criteria
governing such classifications.
As a preliminary matter, the Commission should clarify that what the
proposed rules call a “notice of agreement” is to be a public document. This
follows from the statutory requirement in 39 U.S.C. § 3622(c)(10) that special
agreements must be available on “public and reasonable terms to similarly
situated mailers.” This requirement by definition can be effectuated only if the
terms of NSAs are made publicly available so that similarly situated mailers may
become aware of them. Thus, the proposed rules – which are ambiguous on this
point -- should expressly require notices of agreement to include the NSA and
supporting material and that such contents be publicly available.
Moreover, the Commission should revise Subpart D of its proposed rules
expressly to welcome public comment on a notice of an NSA. The proposed
rules do not clearly provide for public comment, but should be modified to do so.
Public comment on the terms of an NSA is potentially of great value to the
Commission for two reasons.
First, public comment on a notice of an NSA is of potential use to the
Commission for the same reasons as in the context of a notice of general rate
adjustment. As the Commission acknowledges in the NPRM, “public input might
be helpful in determining the compliance of the anticipated rate changes with the
statutory pricing provisions.” NPRM at ¶ 2023.5 There is no reason why public
5
For this reason, proposed Subpart B of the rules governing rate adjustments of general
applicability provide for public comment. See Proposed 39 C.F.R. § 3100.13(b) and specifically §
3100.13(b)(2) (stating that public comments should address whether the proposed rate
adjustments “are consistent with the policies of 39 U.S.C. § 3622”).
6
comment would not be equally helpful in determining the compliance of a
proposed special classification or NSA with statutory provisions as well. And it is
appropriate for the public to comment on such proposals, because an NSA can
have consequences that affect parties beyond merely the Postal Service and the
particular mailer involved.
Second, public comment on special classifications would likely help the
Commission by providing insights unavailable from the Postal Service that are
relevant to the additional statutory criteria of Section 3622(c)(10). The Postal
Service and the NSA mailer will not always be able to provide sufficient data on
the statutory criteria that the NSA have a net positive effect on contribution and
that it not cause unreasonable harm to the marketplace. Other interested parties
may be much better able to provide information necessary to evaluate these
criteria.
For example, other interested parties might point out that the net
contribution to institutional costs may be less than anticipated, or even negative,
due to decreased mail from other mailers. Mailers that compete with an NSA
mailer might find themselves mailing fewer pieces, or smaller pieces that pay
less postage, as a result of the special arrangement for their competitor. It is
unlikely that the Postal Service would have access to information of this nature,
even if it were aware of the possibility.
Furthermore, the statute, consistent with the public service status of the
Postal Service, is concerned with harm to the “marketplace.” The use of the term
“marketplace” – which is broader than merely the “Postal Service” -- is significant.
7
The statutory requirement focuses on effects well beyond merely the effect of the
proposed arrangement on the Postal Service itself or the private mailer. It is not
correct to assume that only parties to a privately-negotiated agreement have
relevant information on the effects of that agreement on the wider public
marketplace – which includes both mailers and other market participants. An
NSA could cause unreasonable harm to the marketplace in ways that the Postal
Service and the mailer may not understand, much less be in any position to
describe either qualitatively or quantitatively. In such situations, other parties will
be better positioned to assist the Commission by shedding light on the
competitive harm to the marketplace directly affected by the special
classification/NSA as well as the effect on related markets.
These other parties could, for example, be competitors of an NSA mailer.
Any competitive advantage that the NSA mailer acquires would be part of their
everyday concern. They would have information about the effects on the
marketplace arising from an NSA that the Postal Service will not have, and that
the NSA mailer will not bring forward because it is not in its interest to do so.
Alternatively, it is even possible that relevant information could come not from a
competitor of the NSA mailer, but rather from a participant in a different part of
the marketplace that, nonetheless, would suffer harm from an NSA.
Not entertaining public comment would deprive the Commission of any
opportunity to benefit from these insights until after a special classification takes
effect – which in some instances would be after severe or irreparable harm is
done. Such an approach is inconsistent with the Commission’s responsibility to
8
protect the legitimate interests of non-parties to the NSA or non-participants in a
special classification. Therefore, the Commission's rules should explicitly allow
for public comment after issuance of the notice of agreement and before the NSA
takes effect.
B.
The Commission Should Provide For Flexibility To Deny Or
Delay An NSA Pending Additional Review Where There Is A
Legitimate Question Regarding Compliance With Section 3622
As noted above, 39 U.S.C. § 3622, and subsection (c)(10) in particular,
establishes certain conditions that a special classification or NSA must meet
before it can take effect. The Commission has a responsibility to prevent from
taking effect a special classification/NSA that fails to satisfy the statutory criteria.6
The NPRM could be read as suggesting that the Commission intends to
address failures to meet the Section 3622 criteria, including the subsection
(c)(10) requirements, only after the fact in the form of data collection and annual
reports or if a complaint is brought. Such an approach would not be consistent
with the text of the statute.
The PAEA cannot reasonably be read as intending to allow an unlawful
arrangement to remain in effect indefinitely, pending conclusion of an annual
review (which may not occur for some 18 months after the arrangement is
implemented) or of a complaint process (which may take a long time as well).
Such an approach would effectively render the statutory criteria meaningless.
For example, significant marketplace harm can certainly occur within a year, and
6
The importance of the issue is heightened by the lack of specific proposals regarding the
complaint process and annual reports. NAA understands that the Commission has chosen to
defer proposals regarding those important aspects of the PAEA while focusing initially on the
ratesetting regulations.
9
damage can be both quite severe and irreparable, particularly if competitors are
driven from the marketplace. This problem is magnified in the market-dominant
product category, for which antitrust damages are not available from the Postal
Service.
NAA understands that the Commission desires to implement the PAEA in
a manner that enables NSAs to be handled in a faster timeframe than was
sometimes the case under the former rules. But a desire for expedition in
general does not preclude the Commission from taking additional time if an issue
warrants more careful consideration. The procedures suggested below need not
give rise to a protracted pre-implementation review. However, they will help to
ensure that the Commission is able to fulfill its responsibility to protect non-NSA
mailers and marketplace participants from special agreements that do not comply
with the statute.
If it is apparent from the Postal Service’s notice of agreement, or from
public comment as discussed in the preceding section, that a proposed special
classification or NSA patently does not satisfy the statutory criteria, the
Commission could reject the proposed arrangement on its face or defer its taking
effect pending a further, more complete review. Where the proposed
arrangement is not patently unlawful, but there is a genuine issue regarding
statutory compliance, the Commission could choose whether to allow the
arrangement to take effect or not, while conducting further proceedings on an
expedited basis. Procedures for such proceedings could be set case-by-case.
For example, the Commission could choose to allow for further written comments
10
and/or written declarations in answer to specified questions, or treat the matter
as a complaint subject to expedited action. In this manner, the Commission
would have flexibility to tailor the proceedings to the issue at hand and to make a
final determination on the special classification efficiently and expeditiously.
None of these suggestions necessarily requires extensive hearings of the
type typical under the Postal Reorganization Act. The Federal Communications
Commission, for example, has handled questions arising from tariff filings
(whether raised on its own or by others) flexibly and generally with reasonable
dispatch and normally without any hearings on the record. However, the
suggested procedures would offer the Commission desirable administrative
flexibility in carrying out its responsibility to prevent unlawful arrangements from
taking effect.
Finally, in addition to these improvements to the review procedures, the
Commission also should provide for expedited consideration of postimplementation complaints that aver that the statutory conditions in Section
3622(c)(10) are not met. Situations may arise in which the effect that the NSA
has in practice is different from or more severe than anticipated, or in which a
party that suffers injury may not have been sufficiently aware of the NSA’s import
to submit its views before the NSA takes effect. Cases also may arise in which
the Commission may conclude that comments on the notice of agreement are
not so compelling as to justify denying or deferring the NSA, but that once it has
commenced its actual effect of the marketplace becomes problematic. In these
11
situations, the Commission’s rules should provide a viable, expedited complaint
mechanism.
C.
The Commission Should Amend Its Proposed Rules To
Incorporate The Statutory Requirement That Special
Arrangements Be Available To Similarly Situated Mailers
Section 3622(c)(10) also provides that agreements between the Postal
Service and mailers must be available “to similarly situated mailers.” The
proposed rules, however, are silent as to how they would implement this
statutory requirement. This omission overlooks the importance of the availability
of an agreement to similar situated mailers as a essential condition for the
legality of an NSA.7
To correct this omission, the Commission should modify its proposed
section 3100.42 to include, as a specific requirement, that a proposed NSA be
available to similarly situated mailers. In its prior regulations, the Commission
used the concept of “functionally-equivalent” NSAs. Nothing in the PAEA has
foreclosed that approach. If anything, Congress’s specifically endorsed that
concept through its use of the “similarly situated” language. Therefore, the
Commission may prefer to carry into its new rules the relevant provisions of its
existing rules that authorize, and facilitate, the consideration of “functionallyequivalent” NSAs.
7
Presumably, similarly situated mailers would not be foreclosed from a niche classification,
so this issue primarily arises in the case of NSAs.
12
II.
THE PROPOSED RULES GOVERNING GENERAL RATE
ADJUSTMENTS SHOULD BE CLARIFIED
NAA commends the Commission for taking a constructive first step at
implementing the provisions of Section 3622 as revised by the PAEA. NAA also
appreciates that, in a number of instances, the Commission did not foreclose the
possibility of developing more detailed regulations on certain issues in the future
if circumstances so warrant.
On the other hand, it is difficult to comment on certain aspects of 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. Accordingly, NAA
may comment more extensively once more specific proposals on these aspects
of the new system are issued.
However, one matter is sufficiently important to raise at this time. NAA
submits that the Commission should amend proposed Subpart B of its rules
governing rate adjustments8 for market-dominant rates as follows. First,
Proposed 39 C.F.R. § 3100.13(b) should be modified to include, specifically,
Section 403(c) as a subject that commenters may address, and likewise Rule
3100.14(b) should be modified to require the Postal Service to address Section
403(c) in its filing.
8
Also, in the nature of a technical correction, Section 3100.42(g) should be amended to
replace the word “increases” with “adjustments.” Rate changes can be downward as well as
upward.
13
Proposed section 3100.13(b) states, in relevant part:
Public comments should address:
...
(2)
Whether the planned rate adjustments are
consistent with the policies of 39 U.S.C. 3622 and
any subsequent amendments thereto.
While this language is fine as far as it goes, on its face it could be read as limiting
the scope of issues which a commenter may address to those arising under
Section 3622. While NAA understands the Commission’s desire to avoid
complex debates on matters such as costing methodologies at that stage, such a
limitation is too narrow insofar as it would appear to foreclose parties from
pointing out rate changes that violate 39 U.S.C. § 403(c), which prohibits
unreasonable discriminations and preferences.
Section 403(c) has equal statutory rank as Section 3622, and has long
been applied to rate and classification proposals. Nothing in the PAEA repealed
Section 403(c), restricted its applicability to rates, or diminished the importance of
the principle that undue preferences and unreasonable discriminations are
forbidden. Indeed, Congress was well aware of the existence of Section 403(c),
relied upon it when considering the law that became PAEA, and even specifically
authorized complaints alleging violation of that section. 39 U.S.C. § 3662(a).
The prevention of unreasonable discriminations against small mailers, and
against all mailers using market-dominant services, is a core protection under the
postal laws. Nothing in the PAEA authorizes the Commission to restrict Section
403(c) contentions to complaint or reporting proceedings. Accordingly,
proposed rule 3100.13(b) should be modified to read:
14
(2)
Whether the planned rate adjustments are
consistent with the policies of 39 U.S.C. 3622 and any
subsequent amendments thereto and 39 U.S.C. §
403(c).
III.
CONCLUSION
For the foregoing reasons and for the reasons set forth in its initial and
reply comments on the first and second Advance Notices of Proposed
Rulemakings in this proceeding, the Newspaper Association of America urges
the Commission to modify its proposed regulations so as to better enable it to
ensure that special classifications meet statutory criteria, and that parties
commenting on notices of rate adjustments may address the compliance of
proposed rates with Section 403(c).
Respectfully submitted,
NEWSPAPER ASSOCIATION OF AMERICA
By:
Paul J. Boyle
Senior Vice President/Public Policy
Newspaper Association of America
529 14th Street NW
Suite 440
Washington DC 20045-1402
202.638.4784
15
/s/ William B. Baker_________
William B. Baker
WILEY REIN LLP
1776 K Street, N.W.
Washington, DC 20006-2304
(202) 719-7255