National Postal Policy Council v. PRC ( 2021 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 13, 2021 Decided November 12, 2021
No. 17-1276
NATIONAL POSTAL POLICY COUNCIL,
PETITIONER
v.
POSTAL REGULATORY COMMISSION,
RESPONDENT
NATIONAL NEWSPAPER ASSOCIATION, ET AL.,
INTERVENORS
Consolidated with 20-1505, 20-1510, 20-1521
On Petitions for Review of Orders
of the Postal Regulatory Commission
Ayesha N. Khan argued the cause for Mailer petitioners.
With her on the briefs were William B. Baker, Eric S. Berman,
Matthew D. Field, Ian D. Volner, and Elizabeth C. Rinehart.
David C. Belt, Attorney, U.S. Postal Service, argued the
cause for petitioner United States Postal Service. With him on
the briefs was Morgan E. Rehrig, Attorney. Stephen J.
Boardman, Chief Counsel, entered an appearance.
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Dana Kaersvang, Attorney, U.S. Department of Justice,
argued the cause for respondent. With her on the brief were
Brian M. Boynton, Acting Assistant Attorney General, and
Michael S. Raab and Michael Shih, Attorneys, David A.
Trissell, General Counsel, United States Postal Regulatory
Commission, Christopher Laver, Deputy General Counsel, and
Anne J. Siarnacki and Reese T. Boone, Attorneys.
Morgan E. Rehrig and David C. Belt, Attorneys, United
States Postal Service, were on the brief for intervenor United
States Postal Service in support of respondent.
William B. Baker, Ayesha N. Khan, Eric S. Berman,
Matthew D. Field, Ian D. Volner, and Elizabeth C. Rinehart
were on the brief for intervenors Alliance of Nonprofit Mailers,
et al. in support of respondent. David M. Levy entered an
appearance.
Before: ROGERS and TATEL, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
Opinion for the Court by Circuit Judge ROGERS.
ROGERS, Circuit Judge: In 2006, Congress passed the
Postal Accountability and Enhancement Act, which directed
the Postal Regulatory Commission to establish a ratemaking
system to govern the prices set by the U.S. Postal Service for
its market-dominant products. Although Congress left many
details to the Commission, it forbid rates from increasing faster
than the rate of inflation. The Commission was also required
to assess after ten years whether the system had achieved nine
objectives. If not, then the Commission could modify the
ratemaking system or adopt an alternative one. This case arises
from that mandatory ten-year review. In 2017, the
Commission found that the existing ratemaking system was
3
deficient and had not maintained the Postal Service’s financial
stability. After extensive review, it adopted a new system in
2020, which retains the price cap generally but allows above-
inflation rate increases to target specific costs. Order 5763:
Order Adopting Final Rules for the System of Regulating Rates
and Classes for Market Dominant Products, Docket No.
RM2017-3 (P.R.C. Nov. 30, 2020), 85 Fed. Reg. 81,124 (Dec.
15, 2020) (“Order 5763”).
Groups whose members purchase postal products
(“Mailers”) and the Postal Service seek review of the
Commission’s new ratemaking system. The Mailers oppose
any new rate authority. They contend that the system is
inconsistent with the statute that gives the Commission its
regulatory authority and is arbitrary and capricious. In
contrast, the Postal Service contends that the Commission’s
new ratemaking system is irrational because it does not confer
enough rate authority. The Commission responds that its
actions are authorized by statute and reasonably explained.
For the following reasons, the court concludes that the
Commission acted within its authority under the
Accountability Act, and that its predictive judgments and
economic conclusions satisfy the Administrative Procedure
Act’s requirement of reasoned decision-making. Accordingly,
the court denies the petitions for review.
I.
By way of introduction, a summary of the Accountability
Act is followed by a summary of the proceedings before the
Commission.
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A.
For much of the Nation’s history, postal services were
administered by the Post Office Department at rates fixed by
Congress. See Nat’l Ass’n of Greeting Card Publishers v. U.S.
Postal Serv., 462 U.S. 810, 813 (1983) (“Greeting Card
Publishers”). In 1970, Congress relinquished control of
ratesetting and replaced the Post Office Department with two
independent executive agencies: the United States Postal
Service and the Postal Rate Commission. See Postal
Reorganization Act of 1970, Pub. L. No. 91-375, §§ 201–02,
3601, 84 Stat. 719, 720, 759. Superintended by a Board of
Governors, consisting of experts in economics, accounting,
law, and public administration, 39 U.S.C. § 502(a), the Postal
Service was required to set rates equal to costs with the goal of
breaking even. See Greeting Card Publishers, 462 U.S. at 813.
To guide the Postal Service, Congress charged the Postal Rate
Commission (later renamed the Postal Regulatory
Commission) with reviewing the Board’s rate proposals. See
id. at 813–14.
In 2006, Congress modernized the Postal Service in the
Postal Accountability and Enhancement Act (“Accountability
Act” or “Act”), Pub. L. No. 109-435, 120 Stat. 3198 (2006).
Section 201 of the Act, 39 U.S.C. § 3622, “completely
reformed the ratemaking system for market-dominant
products,” i.e., those “products for which the Postal Service
enjoys a statutory monopoly, or for which the Postal Service
exercises sufficient market power so that it can effectively
dictate the price of such products without risk of losing much
business to competing firms.” U.S. Postal Serv. v. Postal
Regul. Comm’n, 785 F.3d 740, 744 (D.C. Cir. 2015) (citing 39
U.S.C. § 3642(b)(1)–(2)). The Act required the Commission
to “establish” within eighteen months “a modern system for
regulating rates and classes for market-dominant products.” 39
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U.S.C. § 3622(a). The system had to “be designed to achieve
[nine] objectives, each of which shall be applied in conjunction
with the others,” id. § 3622(b), taking fourteen “[f]actors” into
account, id. § 3622(c). The Act further enumerates five
“[r]equirements” that the ratemaking system “shall” contain.
Id. § 3622(d).
Pertinent here, the Act mandates that the ratemaking
system “include an annual limitation on the percentage changes
in rates . . . equal to the change in the Consumer Price Index.”
Id. § 3622(d)(1)(A). This prevents rates for market-dominant
products from rising faster than the inflation rate. See U.S.
Postal Serv., 785 F.3d at 744. The hope was that moving from
a cost-of-service model to a price cap would incentivize the
Postal Service to cut costs and improve efficiency. See S.
Comm. on Gov’t Affairs, Postal Accountability and
Enhancement Act, S. REP. 108-318, at 9 (2004). The Postal
Service may exceed the price cap if the Commission finds, after
notice and comment, that a rate change is warranted due to
“extraordinary or exceptional circumstances” if “reasonable
and equitable and necessary” to maintain postal services. 39
U.S.C. § 3622(d)(1)(E).
The Accountability Act provides the Commission two
ways to change the ratemaking system. First, the Commission
may “revise” the system “from time to time.” Id. § 3622(a).
Second, the Commission must assess ten years after the Act’s
passage “if the system is achieving the objectives in subsection
(b), taking into account the factors in subsection (c).” Id.
§ 3622(d)(3). “If the Commission determines, after notice and
opportunity for public comment, that the system is not
achieving the objectives,” then it “may, by regulation, make
such modification or adopt such alternative system for
regulating rates . . . as necessary to achieve the objectives.” Id.
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B.
In December 2017, the Commission released the findings
of its ten-year review. Order 4257, Docket No. RM2017-3
(P.R.C. Dec. 1, 2017). It found that “while some aspects of the
system” had “worked as planned, overall[] the system has not
achieved the [Act’s] objectives.” Id. at 5. The Commission
explained that the “operating environment” of the Postal
Service “changed quickly and dramatically” after the Act’s
passage. Id. at 45. The “Great Recession” of 2008 resulted in
the most severe decline in mail volumes since the Great
Depression of the 1930s, causing the Postal Service’s revenue
to plummet. Id. at 38. The period of deflation after the Great
Recession meant the Postal Service could not increase rates due
to the statutory price cap. Id. Throughout, the Postal Service’s
costs soared due to an obligation imposed on it by the
Accountability Act requiring the prefunding of retirement
benefits. Id. at 37. As a result, the Postal Service accumulated
a $59.1 billion deficit in just ten years. Id. at 171.
Given those findings, the Commission determined that the
existing ratemaking system failed to achieve three statutory
objectives. First, the system had not maintained the financial
stability of the Postal Service. Id. at 178. Although the Postal
Service could cover its immediate operating expenses, id. at
159–65, it had not achieved “medium-term stability” as it had
suffered a net loss for ten straight years, id. at 165–69. Nor had
the Postal Service achieved “long-term stability” because it
lacked the funds to invest in capital improvements or pay down
debts. Id. at 169–71. Second, the system had not maximized
incentives to cut costs and improve efficiency. Id. at 226.
Despite the Postal Service having reduced costs, id. at 191, and
improved its efficiency, id. at 203–21, the ratemaking system
did not maximally incentivize such efforts because they “were
insufficient to address the Postal Service’s financial
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instability,” id. at 222. Third, the system had not achieved
reasonable rates “because certain products and [mail] classes
threatened the financial integrity of the Postal Service.” Id. at
236.
Concurrent with its findings, the Commission proposed “a
two-pronged solution designed to place the Postal Service on
the path to financial stability by providing [it] rate adjustment
authority in addition to the CPI-U rate authority.” Order 4258,
Docket No. RM2017-3, at 37 (P.R.C. Dec. 1, 2017). To
address medium-term financial stability, the Commission
proposed authorizing the Postal Service to raise rates annually
by an additional 2% per mail class for five years. Id. at 45.
This would “put the Postal Service on the path to medium-term
financial stability by providing [it] the opportunity to generate
additional revenue to cover its obligations.” Id. at 38. As for
long-term financial stability, the Commission proposed a
performance-based rate authority, which conditioned a 1%
annual rate increase on hitting various benchmarks. Id. at 39.
In addition to these rate authorities, the Commission also
proposed mandating rate increases for mail products whose
costs exceeded revenue. Id. at 77–78.
In response to comments, the Commission issued a revised
ratemaking proposal in December 2019. Order 5337, Docket
No. RM2017-3 (P.R.C. Dec. 5, 2019). In place of an across-
the-board annual rate increase, the Commission proposed two
rate authorities targeted to “costs that are outside of the Postal
Service’s control”: declines in mail density and statutorily
mandated retirement payments. Id. at 12. First, the
Commission found that decreases in mail volume in concert
with the Postal Service’s statutory obligation to service every
address had resulted in a decline in mail density, i.e., the ratio
of mail pieces to delivery points. Id. at 70. This, in turn, raises
the cost of delivering each piece of mail. To account for these
8
costs, the Commission proposed allowing the Postal Service to
raise rates annually by the amount by which per-unit costs are
expected to increase based on the change in mail density in the
prior year. Id. at 77. Second, the Commission found that
“congressionally mandated [retirement] payments are outside
of the Postal Service’s direct control” but “continue to be one
of the primary drivers of net loss.” Id. at 90. The Commission
proposed allowing the Postal Service to raise rates annually by
the amount necessary for revenues to cover these payments. Id.
at 91–92. According to the Commission, its modified proposal
was “intended to go beyond the initial supplemental rate
authority’s goal of placing the Postal Service on the path to
medium-term financial stability by providing the mechanisms
necessary for the system to adjust appropriately to changes in
the operating environment that are driving the Postal Service’s
net losses.” Id. at 13.
In Order 5763, issued in November 2020, the Commission
adopted this new ratemaking system with minor adjustments.
As an initial matter, the Commission rejected the Mailers’
argument that it had to reopen the record to examine the impact
of the COVID-19 pandemic on the Postal Service, reasoning
that “nothing specific to the pandemic undermines the findings
[it] made in Order No. 4257.” Id. at 26. In the new ratemaking
system, the Commission adopted the density-based and
retirement-based rate authorities, concluding that they were
“necessary to achieve the objectives of [39 U.S.C. § 3622(b)],
in conjunction with each other” and “focused on vital near-term
improvements.” Id. at 298. The Commission withdrew the
proposed performance-based rate authority but adopted the rate
increases for non-compensatory mail products. Id. at 21–22.
The Commission stated that it would review the new system in
five years, or sooner if necessary. Id. at 23, 267.
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The Mailers and the Postal Service petitioned for review
of Order 5763. The Mailers unsuccessfully petitioned for stays
by the Commission and by the court. See D.C. Cir. Order, Doc.
No. 1887800 (Mar. 1, 2021); Order 5818, Docket No.
RM2017-3 (P.R.C. Jan. 19, 2021). In July 2021, the
Commission approved a proposal of the Postal Service to
increase rates for market-dominant products. See Order 5937,
Docket No. R2021-2 (P.R.C. July 19, 2021). The Mailers again
unsuccessfully petitioned for a stay by the court. See D.C. Cir.
Order, Doc. No. 1911271 (Aug. 24, 2021). The new prices
took effect on August 29, 2021. Order 5937.
II.
The Mailers contend that Order 5763 exceeded the
Commission’s statutory authority and is arbitrary and
capricious.
A.
First, the Mailers maintain that the Commission exceeded
its statutory authority in allowing the Postal Service to raise
rates in excess of inflation because § 3622 unambiguously
forecloses the Commission from altering the price cap. Mailers
Br. 19–24. Even were the Act susceptible to multiple
interpretations, the Mailers maintain that the new ratemaking
system is “irreconcilable with the Commission’s prior
understanding of the price cap” and is thus unreasonable. Id.
at 25. Finally, the Mailers maintain that the constitutional
avoidance canon counsels against the Commission’s
interpretation because § 3622(d)(3) is otherwise an
unconstitutionally standardless delegation of authority. Id. at
26–30.
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Under the two-step framework in Chevron, U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), the court
first deploys the “traditional tools of statutory construction” to
determine “whether Congress has directly spoken to the precise
question at issue.” Id. at 842–43 & n.9. If so, the court “must
give effect to the unambiguously expressed intent of
Congress.” Id. at 843. If, however, “the statute is silent or
ambiguous with respect to the specific issue,” the court will
defer to the Commission’s interpretation if it is “a permissible
construction of the statute.” Id.; see United Parcel Serv. v.
Postal Regul. Comm’n, 890 F.3d 1053, 1061–62 (D.C. Cir.
2018).
Consequently, the court “begin[s] with the language
employed by Congress and the assumption that the ordinary
meaning of that language accurately expresses the legislative
purpose.” Engine Mfrs. Ass’n v. S. Coast Air Quality Mgmt.
Dist., 541 U.S. 246, 252 (2004) (citation omitted).
Subsection 3622(d)(3) provides:
Ten years after the date of enactment of the Postal
Accountability and Enhancement Act and as
appropriate thereafter, the Commission shall review
the system for regulating rates and classes for market-
dominant products established under this section to
determine if the system is achieving the objectives in
subsection (b), taking into account the factors in
subsection (c). If the Commission determines, after
notice and opportunity for public comment, that the
system is not achieving the objectives in subsection
(b), taking into account the factors in subsection (c),
the Commission may, by regulation, make such
modification or adopt such alternative system for
regulating rates and classes for market-dominant
products as necessary to achieve the objectives.
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39 U.S.C. § 3622(d)(3) (emphasis added).
The plain text contemplates two types of change: the
Commission can “make [] modification[s]” to the ratemaking
system or it can “adopt [an] alternative system.” The word
“modification” means to make a “limited change in
something.” Modification, Merriam-Webster.com,
https://www.merriam-webster.com/dictionary/modification.
In contrast, “alternative,” when used as a noun, describes a
“situation offering a choice between two or more things only
one of which may be chosen.” Alternative, Merriam-
Webster.com, https://www.merriam-webster.com
/dictionary/alternative. By its plain terms, then, the provision
permits the Commission to either make minor changes to the
ratemaking system or replace it altogether.
The Mailers do not contest this interpretation. Instead,
they argue that the alternative ratemaking system adopted
under § 3622(d)(3) must incorporate the price cap. They
submit that § 3622(d)(1) precludes the Commission from
altering the price cap because it is a “[r]equirement[]” that the
“system for regulating rates and classes for market dominant
products shall[] include.” Mailers Br. 19–20. But “[a] standard
principle of statutory construction provides that identical words
and phrases within the same statute should normally be given
the same meaning.” Powerex Corp. v. Reliant Energy Servs.,
Inc., 551 U.S. 224, 232 (2007). In § 3622(a) and (d)(1)(A),
“system” refers broadly to a scheme for “regulating rates and
classes for market-dominant products,” not to the subset of
schemes that comply with the price cap. Therefore, absent
evidence that Congress had a contrary intent, “system” most
logically means the same in § 3622(d)(3), and includes rules
that do not comply with the price cap.
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The Mailers further contend that because § 3622(d)(3)
permits the Commission to review the system “established
under” § 3622, any alternate system adopted must also comply
with all of § 3622’s requirements. Their conclusion does not
follow. Whatever meaning the Mailers give to the word
“under,” the phrase “established under” modifies only the
system the Commission may review, not the alternative system
it may adopt. Congress knew how to limit the Commission’s
authority following the ten-year review and yet declined to
require it to maintain the rate cap. Subsection (d)(3) requires
that any changes to the system be “necessary to achieve the
objectives” in § 3622(b), but makes no mention of the rate cap.
The Mailers also invoke the presumption in Russello v.
United States — that the inclusion of a phrase in one provision
and its absence in another is deliberate, 464 U.S. 16, 23 (1983)
— to argue that the exception to the price cap for emergencies
in § 3622(d)(1)(E) demonstrates that Congress decided not to
grant the Commission the authority to override the price cap in
§ 3622(d)(3). Mailers Br. 20–21. That canon has limited force
here, however, because the two provisions use different words
and are not otherwise parallel. See City of Columbus v. Ours
Garage & Wrecker Serv., Inc., 536 U.S. 424, 435–36 (2002).
Section 3622(d)(1)(E) is only meaningful insofar as a price cap
exists, so it is unsurprising that it references the cap.
The Mailers’ narrow interpretation of § 3622(d)(3) would
also render § 3622(a) superfluous. See Mail Order Ass’n of
Am. v. U.S. Postal Serv., 986 F.2d 509, 515 (D.C. Cir. 1993)
(canon against surplusage). In addition to directing the
Commission to “establish” a ratemaking system, § 3622(a) also
provides that the Commission may “revise” the system “from
time to time thereafter by regulation.” 39 U.S.C. § 3622(a).
The Mailers’ interpretation of § 3622(d)(3) would render these
words surplusage: if the price cap is an immutable feature of
13
the ratemaking system, then there is no meaningful difference
between the Commission’s authority to “revise” the
ratemaking system and its authority to adopt an “alternative”
ratemaking system after ten years. In contrast, the
Commission’s authority to revise the ratemaking system under
§ 3622(a) suggests that its authority following the ten-year
review must be broader under § 3622(d)(3): the former allows
the Commission to make modest changes to the ratemaking
system at its discretion while the latter authorizes the
Commission to replace the existing system if, after ten years, it
concludes that the existing system has failed to achieve the
Act’s objectives. Broad authority under § 3622(d)(3) would be
consistent with the more onerous procedural requirements
imposed by that section, which requires notice and comment
and a determination that the current system is not achieving the
statutory objectives.
The legislative history supports the Commission’s
interpretation. See Pharm. Rsch. & Mfrs. of Am. v. Thompson,
251 F.3d 219, 224 (D.C. Cir. 2001). Section 3622(d)(3) was
not in the versions of the bills initially passed by the House and
Senate; the Senate bill retained a price cap while the House bill
contained a price cap that could be eliminated after notice and
comment. H.R. 22, 109th Cong. § 201(a) (as passed by House,
July 26, 2005); H.R. 22, 109th Cong. § 201(a) (as passed by
Senate, Feb. 9, 2006). Subsection (d)(3) was added during the
House-Senate Conference and thereafter enacted by both
Houses of Congress. See 152 Cong. Rec. H9160–H9182 (daily
ed. Dec. 8, 2006); id. at S11,821–S11,822 (daily ed. Dec. 8,
2006). The primary Senate sponsor of the conference bill,
Senator Susan Collins, addressed the provision on the floor of
the United States Senate:
After 10 years, the Postal Regulatory Commission
will review the rate cap and, if necessary, and
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following a notice and comment period, the
Commission will be authorized to modify or adopt an
alternative system.
While this bill provides for a decade of rate stability,
I continue to believe that the preferable approach was
the permanent flexible rate cap that was included in
the Senate-passed version of this legislation. But, on
balance, this bill is simply too important, and that is
why [the conferees] have reached this compromise to
allow it to pass. We at least will see a decade of rate
stability, and I believe the Postal [Regulatory]
Commission, at the end of that decade, may well
decide that it is best to continue with a CPI rate cap in
place. It is also, obviously, possible for Congress to
act to reimpose the rate cap after it expires.
152 Cong. Rec. S11,675 (daily ed. Dec. 8, 2006) (statement of
Sen. Collins). The Senator’s remarks reinforce the plain
meaning of the statutory text: during its ten-year review, the
Commission may adopt an alternative system and is not
necessarily constrained the price cap.
The Mailers additionally maintain that the Commission’s
interpretation of the statute runs afoul of the nondelegation
doctrine and should be rejected on constitutional avoidance
grounds. Mailers Br. 26–30. But this argument, too, is
unavailing. A statutory delegation of authority is constitutional
so long as Congress has provided an “intelligible principle to
which the person or body authorized to [act] is directed to
confirm.” Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 472
(2001) (quoting J.W. Hampton, Jr., & Co. v. United States, 276
U.S. 394, 409 (1928)). To date, the Supreme Court has found
“the requisite ‘intelligible principle’ lacking in only two
statutes, one of which provided literally no guidance for the
15
exercise of discretion, and the other of which conferred
authority to regulate the entire economy on the basis of no more
precise a standard than stimulating the economy by assuring
‘fair competition.’” Id. at 474 (citing Panama Refin. Co. v.
Ryan, 293 U.S. 388 (1935); A.L.A. Schechter Poultry Corp. v.
United States, 295 U.S. 495 (1935)). Section 3622(d)(3), by
contrast, provides an intelligible principle to guide the
Commission by requiring that alterations to the ratemaking
system be “necessary to achieve the objectives” in § 3622(b),
which enumerates nine criteria.
B.
The Mailers next contend that the Commission’s
ratemaking system is arbitrary and capricious because it fails
to achieve statutory objectives. They also raise issues with the
density-based rate adjustment specifically and contend that the
Commission erred by not updating its analysis in response to
the COVID-19 pandemic. Mailers Br. 30–48.
Here, the court’s review is deferential, reflecting
“‘reluctan[ce] to interfere with [an] agency’s reasoned
judgments’ about technical questions within its area of
expertise.” Alliance of Nonprofit Mailers v. Postal Regul.
Comm’n, 790 F.3d 186, 197 (D.C. Cir. 2015) (quoting NRG
Power Mktg., LLC v. FERC, 718 F.3d 947, 953 (D.C. Cir.
2013)). An agency need only articulate a “rational connection
between the facts found and the choice made.” Motor Vehicle
Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463
U.S. 29, 43 (1983) (internal quotation omitted).
Two features of Order 5763’s regulatory regime weigh in
favor of deference. First, the Accountability Act requires the
Commission to consider nine objectives. 39 U.S.C. § 3622(b).
“[O]ur review of agency decisions based on multi-factor
16
balancing tests . . . is necessarily quite limited. We may not
merely substitute the balance we would strike for that the
agency reached.” U.S. Postal Serv. v. Postal Regul. Comm’n,
963 F.3d 137, 141 (D.C. Cir. 2020) (quoting USAir, Inc. v.
Dep’t of Transp., 969 F.2d 1256, 1263 (D.C. Cir. 1992)).
Second, the Commission’s decision depends on “predictive
judgments about the likely economic effects of a rule,” which
are “squarely within the ambit of the Commission’s expertise.”
Newspapers Ass’n of Am. v. Postal Regul. Comm’n, 734 F.3d
1208, 1216 (D.C. Cir. 2013) (alteration adopted; citation
omitted). The court’s “narrow task” is thus “to ensure that the
Commission sufficiently supported its analysis.” Id.
1.
The Mailers maintain that the Commission’s ratemaking
system is arbitrary and capricious because it will both “upset
the prior system’s successes in achieving multiple objectives”
and “aggravate” its “failure to achieve other objectives.”
Citing the statutory objectives in § 3622(b), they contend the
new system will weaken incentives to cut costs, harm rate
predictability and stability, render rates unjust and
unreasonable, reduce transparency, and exacerbate the existing
system’s failure to incentivize efficiency improvements.
Mailers Br. 31, 33–34.
Maximizing incentives to improve efficiency: Before the
Commission, the Mailers argued that giving the Postal Service
additional rate authority would weaken incentives to be more
economical and efficient because the Postal Service would
cover its costs through rate increases. Comments, Alliance of
Nonprofit Mailers, at 14–18 (Feb. 3, 2020). The Commission
disagreed. Order 5763 at 298–310. It stated that although a
price cap “[t]heoretically” incentivizes the regulated entity to
reduce costs and increase efficiency, the Act had failed to do
17
so because factors outside of the Postal Service’s control had
resulted in its costs far exceeding its revenues. Id. at 301–02.
Therefore, the Commission explained, “providing the Postal
Service with the needed pricing tools to narrow the existing
formidable gap between revenues and costs” would incentivize
the Postal Service “to bridge that gap fully via efficiency gains
and cost reductions.” Id. at 303. Further, the Commission
found that the supplemental rate authorities would not weaken
efficiency incentives because they compensate the Postal
Service for costs that are “largely outside of its direct control.”
Id. at 304. “By closely tailoring the modifications” to these
exogenous costs, the Commission can “provide correct
incentives and . . . encourage prudent pricing and operational
decision-making by the Postal Service.” Id. at 302.
Maintaining predictable and stable rates: The
Commission found unpersuasive the Mailers’ argument that
the new ratemaking system would produce excessive price
hikes, explaining that the rate authorities limit the maximum
allowable annual rate increase. Id. at 312. It also concluded
that “[t]his concern fails to account for the Commission’s
findings and analysis, which extensively discusses the
deficiencies of the existing ratemaking system,” namely that it
failed to maintain the Postal Service’s financial stability and
resulted in unreasonably low rates. Id. at 313. The
Commission further found that the Mailers’ concern
overlooked that the Postal Service has “inherent incentives to
exercise business judgment” and not raise rates too sharply. Id.
at 314. Further, the use of rate formulas would minimize
unpredictable price fluctuations and allow for forecasting. Id.
at 315.
Increasing transparency: The Commission found that the
new ratemaking system was consistent with the statutory
objective of promoting transparency because it “provided a
18
thorough, publicly available explanation” of the rate
authorities, “the formula uses inputs from publicly available
data and information,” and it would “maintain[] the underlying
calculations on its public website, similar to existing practice.”
Id. at 349. Additionally, the Commission concluded that “[a]ny
additional administrative burden associated with the
calculation is minimal and justified by the need to address
underlying drivers of the existing system’s deficiencies.” Id.
Establishing just and reasonable rates: In Order 5763,
the Commission rejected as “largely overstated,” id. at 352, the
Mailers’ concern that the new rate system would unjustly
enrich the Postal Service. Giving the Postal Service greater
rate authority was necessary, in the Commission’s view, to
allow “the Postal Service to set rates that would not threaten its
financial integrity.” Id. The new system would also protect
mailers because it “limit[ed] the accrual and use of rate
authority to correct particular systemic deficiencies.” Id. For
instance, the Commission found that the density-based rate
authority would not result in excessive rates because it does not
constitute a rate reset, and its formula is designed to produce
conservative cost estimates. Id. at 353–54. The Commission
also found that the ratemaking system included “sufficient
safeguards” to prevent excessive rate increases, pointing out
that ratepayers may challenge rate changes before the
Commission. Id. at 358–59.
Despite the Mailers’ objections to the new ratemaking
system, the Commission articulated a rational connection
between the statutory objectives and the decision it made.
Given the deference due to an agency’s judgment about how to
balance competing factors, USAir, 969 F.2d at 1263, the
Mailers offer no basis for the court to conclude that the
Commission’s decision was arbitrary and capricious in meeting
the statutory objectives.
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2.
The Mailers challenge the density-based rate authority as
arbitrary and capricious, because (1) it fails to account for per-
unit revenue and therefore will “grossly over-recover delivery
costs,” and (2) it will accelerate, rather than remedy, the decline
in mail density. The Mailers further maintain that the
Commission failed to respond meaningfully to comments
raising these objections. Mailers Br. 34–46.
The Commission adequately justified its density-based
rate authority. First, it was not arbitrary for the Commission to
reject comments that the density-based rate authority had to
account for the mix of delivered mail and per-unit revenues.
As the Commission explained, the “rate authority is designed
to offset increases in per-unit costs” caused by declining mail
density, “not . . . to offset contribution changes from individual
mail classes.” Order 5763 at 95. Per-unit revenues are
irrelevant, according to the Commission, because “changes to
per-unit costs are not isolated to specific classes.” Id. Rather,
“[a]s overall volume decreases,” the fixed costs associated with
delivering the mail “are borne by fewer pieces, driving an
increase in per-unit costs, irrespective of class.” Id.Additionally, a revenue-based formula would tie the density
authority to the Postal Service’s pricing decisions, leading to
inefficient pricing. Id.Nor did the Commission irrationally reject the Mailers’
argument that the density-based rate authority would accelerate
volume loss. Before the Commission, the Mailers argued that
the supplemental rate authority would trigger a “death spiral,”
a self-reinforcing cycle where price hikes induce further
volume loss. Comments, Alliance of Nonprofit Mailers, at 28–
39 (Feb. 3, 2020); Comments, Nat’l Postal Policy Council, 36–
20
38 (Feb. 3, 2020). The Commission, however, found that this
argument rested on the faulty premise that market-dominant
products are highly price sensitive. Order 5763 at 82. In its
“experience, demand for Market Dominant products has been
relatively price inelastic”: volumes “grew steadily” before
2006 when prices were not capped yet consistently declined
during the price-cap era. Id. As a result, the Commission
“expected” “the decrease in volume induced by the density-
based rate authority . . . to be less in proportional terms than the
amount of density-based rate authority.” Id.The Mailers maintain that the Commission’s estimate of
price sensitivity is too low, because it is calculated using data
from a period when price changes were small relative to those
anticipated with the new rule. Comments, Alliance of
Nonprofit Mailers, at 31–32 (Feb. 3, 2020). But a disagreement
over price sensitivity is insufficient to invalidate the
Commission’s order, as this court defers to the Commission’s
reasonable economic assumptions and predictions. See
Newspapers Ass’n of Am., 734 F.3d at 1216; City of Los
Angeles v. Dep’t of Transp., 165 F.3d 972, 977 (D.C. Cir.
1999). Further, the Commission responded to the Mailers’
objection by noting that the Postal Service did not have to use
all available rate authority if doing so would be
counterproductive. Order 5763 at 83. The Commission also
noted that it “retains the authority to revisit the density-based
rate authority” if “volume effects are outside the expected
range.” Id.And the Mailers object that the Commission ignored their
comments that Order 5763 overestimated density-related costs
relative to the “roll-forward” method used in other contexts.
But the Commission found that using a prospective method like
the roll-forward method “would be more complicated,” “entail
more uncertainty,” and “require an additional mechanism in
21
later years to correct for inaccurate projections.” Id. at 91.
Given that “[n]one of the commenters ha[d] shown that a
forward-looking model would have sufficiently improved
accuracy over the Commission’s backwards-looking estimate,”
the Commission concluded that they had failed “to justify these
tradeoffs.” Id. at 91 n.136.
3.
Lastly, the Mailers maintain that the Commission “ignored
evidence demonstrating that density and other new rate
authorities are not necessary” because “the pandemic has
spurred massive volume increases in profitable packages,
improving [the Postal Service’s] financial condition overall.”
Mailers Br. 46–47.
The Commission adequately supported its decision not to
reopen the record. It found that the COVID-19 pandemic did
not alter its finding that the existing ratemaking system failed
to achieve the Accountability Act’s objectives because “[t]he
Postal Service’s finances remain[ed] unstable” and “the
problems identified in Order No. 4257 with respect to pricing
and operational efficiency and unreasonable rates have not
abated.” Order 5763 at 26–27. “These challenges,” the
Commission observed, “which all pre-date the pandemic, are
expected to persist as long as the existing ratemaking system
remains in effect, and nothing specific to the pandemic alters
[its] findings with regard to these deficiencies.” Id. at 27. The
Commission therefore “[did] not find any good cause to further
delay implementation of the [new] ratemaking system,” and
stated that it would “intervene as necessary if economic
conditions prevent the final rules from operating as intended to
achieve the objectives of section 3622.” Id. at 31.
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The Mailers further submit that the Commission relied on
“stale data” from 2019, and that the Postal Service’s revenue
and cash position meaningfully improved by mid-2020.
Mailers Br. 48. But in Order 5763, the Commission noted that
pricing authority should be determined not by revenue, but by
costs, and that “as a result of the pandemic[,] there are fewer
total mailpieces today over which the costs of servicing and
maintaining the Postal Service’s network can be distributed.”
Order 5763 at 28–29, 95. The mid-2020 financial data cited
by the Mailers does not invalidate the Commission’s reasoning.
Moreover, in response on appeal the Commission points out
that the Postal Service’s financial condition worsened by the
end of 2020, as indicated by operating losses comparable to
those in previous years and declining profitability. P.R.C. Br.
72 (citing its financial analysis and 10-K Statement, Fiscal
Year 2020).
III.
The Postal Service also contends that Order 5763 was
arbitrary and capricious, but advances arguments diametrically
opposed to those of the Mailers.
A.
The Postal Service first maintains that the Commission’s
new ratemaking system defies reasoned decision-making by
“not actually provid[ing] [it] with an opportunity to cover its
costs” and so “perpetuates the same faults that [the
Commission] found in the legacy system.” USPS Br. 27.
Analogizing its situation to that of a bicycle tire with a leak, the
Postal Service argues that the Commission’s new system had
not only to account for future revenue loss (i.e., patch the hole)
but also return rates to a compensatory level (i.e., reinflate the
tire). See id. at 28–29. Because the new system does not reset
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rates, the Postal Service posits that its financial stability
remains insecure, making Order 5763 arbitrary and capricious
“on its [o]wn [t]erms.” Id. at 26–27, 30–31.
In Order 5763, the Commission addressed the Postal
Service’s argument that its proposed rate authorizations were
inadequate to achieve financial stability because they did not
reset rates to fully compensatory levels. Order 5763 at 347–
48. The Commission explained that it “ha[d] never asserted
that the Market Dominant ratemaking system must
immediately recover all of the historic net losses or reset all
rates to a level sufficient to cover all costs.” Id. at 347. Such
a system “would fail to balance” the competing objectives of
rate stability and predictability and maximizing efficiency
incentives because it would “incentivize the Postal Service to
solely raise rates to respond to its challenges.” Id. In contrast,
the supplemental rate authorities balanced these objectives
because they “mitigate the imminent financial pressure on the
Postal Service, correct certain harmful pricing practices, and
retain sufficient incentives to pursue cost reductions and
efficiency gains.” Id. Further, “[g]iven that the near-term
financial instability is a source of imminent peril,” the
Commission concluded that it was reasonable “to address those
more time-sensitive issues first and then evaluate how the
longer-term financial stability issues should be addressed, in
conjunction with the other objectives, under the modified
ratemaking system.” Id. at 348.
This explanation satisfies arbitrary-and-capricious review.
The Accountability Act instructs that the nine objectives “shall
be applied in conjunction with [each other].” 39 U.S.C.
§ 3622(b). Following that directive, the Commission
reasonably concluded that although a rate reset might further
the goal of financial stability, it would undermine other
objectives. It explained that allowing the Postal Service to
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cover its costs solely through rate increases would discourage,
not incentivize, cost-cutting and efficiency improvements.
Order 5763 at 347. Further, a rate reset of the magnitude
proposed by the Postal Service would “represent a regression”
in progress toward achieving predictable and stable rates. Id.
at 297. With these findings, it was not arbitrary for the
Commission to choose a system that balanced the Act’s
competing objectives rather than one that maximized financial
stability at the expense of other goals. See U.S. Postal Serv.,
963 F.3d at 141. Equally reasonable was the Commission’s
decision to address the problem incrementally. It is well settled
that agencies need not solve a problem in a single rulemaking.
See Mobil Oil Expl. & Producing Se. Inc. v. United Distrib.
Cos., 498 U.S. 211, 231 (1991).
B.
In a related challenge, the Postal Service maintains that the
Commission failed to provide a reasoned explanation for
deciding not to implement a rate reset. In its view, the
Commission’s “suggest[ion] that a rate reset is unnecessary” is
contrary to the evidence, which shows that a rate reset is needed
to return the Postal Service to financial solvency, as well as the
Commission’s own statements in Order 5763. USPS Br. 32–
35. Further, the Postal Service maintains that the Commission
inadequately explained its finding that a rate reset was contrary
to some statutory objectives. Id. at 36–43.
The Postal Service’s objections are unavailing. To begin,
the record does not support the Postal Service’s argument that
the Commission suggested a rate reset is “unnecessary.” The
materials cited by the Postal Service merely state that the
Commission has decided to adopt rate authorities tailored to
specific costs; the materials did not state or otherwise suggest
that the new ratemaking system rendered a rate reset
25
unnecessary. Order 5337 at 60; Order 5763 at 173. Nor is the
Commission’s decision inconsistent with the evidence or its
prior statements. Rather, the Commission reasonably
determined that implementing a rate reset “at this time” would
be contrary to various statutory objectives. Order 5763 at 347–
48.
Finally, the Postal Service’s challenge to the
Commission’s weighing of the statutory objectives is
unpersuasive. The Commission explained that resetting rates
to equal costs would weaken the Postal Service’s incentive to
cut costs and improve efficiency. Id. On the other hand,
enhancing the Postal Service’s rate authority so it can cover
some of its costs through rate increases “narrow[s] the existing
formidable gap between revenues and costs” thereby creating
“meaningful” incentives to “bridge that gap fully via efficiency
gains and cost reductions.” Id. at 303. As for predictable and
stable rates, the Commission explained that a sudden and
significant price increase could harm mailers and mail volume.
Id. at 196. Regarding just and reasonable rates, the
Commission explained that the new regulatory system
“balance[d] . . . differing views” and “would neither threaten
[the Postal Service’s] financial integrity nor would be
excessive to mailers.” Id. at 352–53. The Commission’s
decision not to implement a rate reset at this time was thus
reasonable and reasonably explained.
Accordingly, the court denies the petitions for review.