USPS files brief in workshare discount litigation

The US Postal Service claims the Postal Regulatory Commission overstepped its authority in September when it issued an “Order Adopting Analytical Principles Regarding Workshare Discount Methodology“, which it intended to use as a framework for assessing the validity of proposed worksharing discounts. The USPS appealed the PRC’s action to the DC Appeals Court, and has filed its initial brief:

In the rulemaking proceeding under review, the PRC expanded the definition of worksharing well beyond work that can be performed by either the Postal Service or a mailer. In so doing, it has created a discount tail that wags the pricing dog. Instead of providing the Postal Service with the pricing flexibility that the PRC itself has said was a principal goal of Congress in enacting the PAEA, the PRC has made the workshare discount the force that drives pricing decisions for one of the Postal Service’s flagship products, Presorted First-Class Mail and, in turn, restricts the Postal Service’s options regarding other First-Class products.

First, the plain language of the PAEA limits workshare discounts to four discrete activities: “the presorting, prebarcoding, handling, or transportation of mail.” 39 U.S.C. § 3622(e)(1). While the PRC has authority to further define those four specified activities, it does not have authority to add to the list of worksharing activities. Nonetheless, that is precisely what it has done in its Order by purporting to regulate, pursuant to its authority under the workshare provisions, “ancillary workshare characteristics” that have nothing to do with work that can be performed by either the mailer or the Postal Service and that do not result in any “avoided costs” for the Postal Service. This Court should set aside the PRC’s conclusion that it has the authority to regulate nonworksharing activities and mail characteristics pursuant to the worksharing provisions of the PAEA because that conclusion is arbitrary, capricious and contrary to the plain language of the PAEA.

Second, the PRC incorrectly concluded that worksharing relationships can exist between and across mail products. By definition, mail products have different cost characteristics, different demand characteristics or both. In contrast, a worksharing relationship between two types of mail is predicated on the notion that the only difference between the two is the costs avoided by a mailer’s worksharing activity. In other words, there is a benchmark type of mail and a workshared variant of that type of mail that costs less for the Postal Service to process. That difference in costs – costs avoided – is reflected in a discount that may not exceed the costs avoided by the worksharing activity. Contrary to the PRC’s Order, a type of mail in one product group cannot serve as the benchmark for a type of mail in another product group because those separate products have different cost or demand characteristics. Thus separate products have cost differentials or pricing differentials that are not related to any of the four specified worksharing activities and do not reflect “costs avoided” by the Postal Service. Moreover, this conclusion undermines the Postal Service’s pricing flexibility as well as other objectives of the PAEA, while the PRC did not identify a single objective of the PAEA that is served by its conclusion. In fact, the PRC suggested that it could exercise its authority under the worksharing provisions of the PAEA without reference to the objectives of the PAEA. In these circumstances, it is clear that the conclusion that worksharing relationships can exist between and across separate mail products is arbitrary, capricious and contrary to the PAEA.

Third, even if a workshare-discount relationship could exist across products, the PRC incorrectly concluded that there is a workshare relationship between Presorted First-Class Mail and Single-Piece First-Class Mail. The evidence in the record does not support the PRC’s conclusion. To the contrary, the evidence strongly suggests that Presorted and Single-Piece First-Class Mail are fundamentally distinct types of mail, and it is inappropriate to benchmark one to the other. According to the PRC, a worksharing relationship exists if benchmark mail is likely to convert in significant numbers to the workshared variant when the discount is provided and if workshared mail is likely to revert to the benchmark type when the discount is withdrawn. The evidence in the record shows that the historic process of conversion from Single-Piece to Presorted First-Class Mail is largely over. Additionally, a presort mailer faced with a price increase due to elimination of the discount is more likely to convert, where possible, to lower cost and less profitable Standard Mail or to leave the mail altogether. Thus the conclusion that a worksharing relationship must be maintained between some unidentified subset of Single-Piece First Class Mail and Presorted First-Class Mail is arbitrary and capricious, and this Court should grant the petition for review.

USPS Brief in PRC Worksharing Litigation