184 827 1999 34 34 v. v. Us v. 827 184 827 1999 34 34 v. v. v. 98 1320 For the District of Columbia Circuit

• Decision Date: 23 July 1999
• Docket Number: No. 98-1310,N,No. 98-1336,98-1310,98-1336
• Citation: 184 F.3d 827
• Parties: Page 827 184 F.3d 827 (D.C. Cir. 1999) "Complex" United Parcel Service, Inc.,Petitioner v. United States Postal Service, Respondent Alliance of Nonprofit Mailers, et al.,Intervenors Alliance of Nonprofit Mailers and Coalition of Religious Press Associations, Petitioners v. United States Postal Service, Respondent United Parcel Service, Inc., Intervenor Niagara Telephone Company, Petitioner v. United States Postal Service, Respondent o. 98-1320, United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 827

184 F.3d 827 (D.C. Cir. 1999)

"Complex"

United Parcel Service, Inc.,Petitioner v United States Postal Service, Respondent Alliance of Nonprofit Mailers, et al.,Intervenors Alliance of Nonprofit Mailers and Coalition of Religious Press Associations, Petitioners v United States Postal Service, Respondent United Parcel Service, Inc., Intervenor Niagara Telephone Company, Petitioner v United States Postal Service, Respondent

No. 98-1310, No. 98-1320,No. 98-1336

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 14, 1999

Decided July 23, 1999

[Copyrighted Material Omitted]

On Petitions for Review of an Order of the United States Postal Service

David M. Levy argued the cause for the Alliance of Nonprofit Mailers and Coalition of Religious Press Associations.

John E. McKeever argued the cause for United Parcel Service, Inc.

Timothy E. Welch argued the cause for Niagara Telephone Company.

Daniel J. Foucheaux, Jr., Counsel, United States Postal Service, argued the cause for the United States Postal Service. Eric P. Koetting and Scott L. Reiter, Attorneys, United States Postal Service, were on brief.

Dana T. Ackerly, II, John M. Burzio, Thomas W. McLaughlin, Ian Volner, David C. Todd, Timothy J. May and Mark L. Pelesh were on brief for the Advertising Mail Marketing Association, et al. David L. Meyer, N. Frank Wiggins and Jeffrey J. Lopez entered appearances.

William J. Olson and John S. Miles were on brief for the Association of Priority Mail Users, Inc., et al.

Before: Ginsburg, Henderson and Rogers, Circuit Judges.

Opinion for the Court filed Per Curiam.

Per Curiam:

The petitioners raise five challenges to the May 11, 1998 Opinion and Recommended Decision of the United States Postal Rate Commission (Commission), as approved by the United State Postal Service Board of Governors (Governors) on June 29, 1998. For the reasons set out below, we reject each of the challenges and deny the petitions for review.

I. Background

Under the Postal Reorganization Act (Act), "the Governors are authorized to establish reasonable and equitable classes of mail and reasonable and equitable rates of postage and fees for postal services" subject to the over-all "break even" limitation that "[p]ostal rates and fees shall provide sufficient revenues so that the total estimated income and appropriations to the Postal Service will equal as nearly as practicable total estimated costs of the Postal Service." 39 U.S.C. § 3621 (1994). The United States Postal Service (Postal Service, Service or USPS) initiates a ratemaking proceeding by requesting that the Commission "submit a recommended decision on changes in a rate or rates of postage or in a fee or fees for postal services." Id. § 3622(a).

The Commission is then required to

make a recommended decision on the request forchanges in rates or fees in each class of mail or type ofservice in accordance with the policies of this title andthe following factors:

(1) the establishment and maintenance of a fair andequitable schedule;

(2) the value of the mail service actually provided eachclass or type of mail service to both the sender and therecipient, including but not limited to the collection,mode of transportation, and priority of delivery;

(3) the requirement that each class of mail or type ofmail service bear the direct and indirect postal costsattributable to that class or type plus that portion of allother costs of the Postal Service reasonably assignableto such class or type;

(4) the effect of rate increases upon the general public,business mail users, and enterprises in the privatesector of the economy engaged in the delivery of mailmatter other than letters;

(5) the available alternative means of sending andreceiving letters and other mail matter at reasonablecosts;

(6) the degree of preparation of mail for delivery intothe postal system performed by the mailer and itseffect upon reducing costs to the Postal Service;

(7) simplicity of structure for the entire schedule andsimple, identifiable relationships between the rates orfees charged the various classes of mail for postalservices;

(8) the educational, cultural, scientific, and informa-tional value to the recipient of mail matter; and

(9) such other factors as the Commission deems appro-priate.

Id. § 3622(b).

The Commission has construed section 3622(b) to establish a "two-tier approach to allocating the Postal Service's total revenue requirement" under which the Commission "first must determine the costs caused by ('attributable to') each class of mail, § 3622(b)(3), and on that basis establish a rate floor for each class" (the "attributable" costs) and "then must 'reasonably assign,' see § 3622(b)(3), the remaining costs to the various classes of mail on the basis of the other factors set forth in § 3622(b)" (the "institutional" costs). National Ass'n of Greeting Card Publishers v. USPS, 462 U.S. 810, 814-15 (1983). The Commission then issues its recommended decision setting rates in accordance with the combined attributable and institutional costs for each class of mail and with the statutory mandate that the Postal Service's rates and fees "equal as nearly as practicable total estimated costs of the Postal Service," 39 U.S.C. § 3621 (1994). Upon receiving the Commission's decision, the Governors "may approve, allow under protest, reject, or modify that decision." Id. § 3625(a).¹

The Commission issued its Opinion and Recommended Decision allocating attributable and institutional costs for each class of mail on May 11, 1998 (PRC Op. R97-1). See Joint Appendix (JA) vol. ii. On June 29, 1998 the Governors issued their decision accepting the Commission's rates with "minimal exceptions." See JA vol. i. 708. We address below the petitioners' challenges to the Commission's decision as accepted by the Governors.

II. DISCUSSION

As noted above, the petitioners challenge the Commission's rate making decision on five grounds. We examine each ground separately.

A. The Overall Rate Increase

1.

During the three years (1995-1997) since its last rate increase in Docket No. R94-1, the Postal Service has experienced revenue surpluses after decades of deficits. The Service feared, however, that its net income would be insufficient to cover planned increases in capital spending on several management-initiated projects designed to improve the Postal Service's performance and infrastructure. The Service initially estimated that its total revenue requirement for Fiscal Year 1998 would be $61.6 billion, including $60.564 billion in incurred costs, $605.6 million for a one-percent contingency fund, and $446.9 million to recover one-ninth of the Service's $4.022 billion in accumulated debt. On this basis, it projected that it would need over $2.4 billion in additional revenue. The Service filed its request with the Commission in July 1997, based on data from FY 1996, using 1998 as a "test year"--a year that is to be "representative of the period for which the proposed rates are to be in effect." PRC Op. R97-1 at 12; see also 39 C.F.R. § 3001.54(f)(2) (1998).

While the request was pending before the Commission, subsequent data indicated that the Postal Service's original revenue estimates had been overly pessimistic. For example, although it had initially projected a surplus of only $636 million for 1997, in fact the Service received a net income of $1.264 billion. In addition, although it originally projected a $1.4 billion shortfall in revenues for FY 1998,² in the first seven accounting periods of FY 1998, the Service received a $1.36 billion net income and would have to lose $2.6 billion over the remainder of the year to experience the initial estimated losses. As a result of these discrepancies, the Commission took the apparently unusual step of asking the Governors to provide updated estimates for FY 1998 based on 1997 actual results; although this request would delay the proceeding, the Commission observed that "no pressing need for new rates" existed at the time. The Governors declined the Commission's request, rejecting an extension of the tenmonth deadline and stating that they did not wish to "comment ... on the state of the evidentiary record" and that the Governors could use their discretion as to the timing of implementing rates "to provide for the best transition to new rates."

After it became apparent that its original revenue estimates were overly pessimistic, the Postal Service reported to the Commission that it would face more costs than it had initially predicted. Specifically, it requested a new contingency figure of 1.5% instead of 1%, noting that in prior years the figure had been as high a 3.5%. In addition, the Service predicted that it would need $300 million more than it had initially requested for discretionary programs, such as automated data processing. The Commission rejected what it viewed as attempts to avoid the full impact of the Service's bright economic situation, labeling the new 1.5% contingency number "a plug figure" used by the Service to counterbalance the decrease in the size of its contingency fund in light of 1997's actual data. Further, the Commission dismissed as "speculative" the Postal Service's claims that it would spend even more money than it had initially projected in FY 1998, even though it continued "to spend significantly less than its rate case forecasts" during the first half of the test year. The Commission pointed to a Postal Service document-inadvertently included as evidence and initially disavowed by the Service as inauthentic--that identified the Service's updating "strategy" as "provid[ing] updated information on cost increases to offset the decreases" resulting from 1997's actual figures. The Commission found that although the document "may not demonstrate an intent to mislead.... it indicates that the Service was looking for potential cost increases."

The Commission therefore rejected the Service's effort to...