TITLE I—REDESIGNATION OF THE BOARD OF GOVERNORS, THE POSTMASTER GENERAL, AND THE POSTAL RATE COMMISSION

Sec. 101. Redesignation of the Board of Governors……………………………….…..7

Sec. 102. Redesignation of the Postmaster General…………………………………….7

Sec. 103. Redesignation of the Postal Rate Commission……………………………….7

Sec. 104. Other references………………………………………………………………7

TITLE II—NEW SYSTEM RELATING TO POSTAL RATES, CLASSES, AND SERVICES

Subtitle A—In General

Sec. 201. Establishment.

"SUBCHAPTER I—DEFINITIONS

‘‘Sec.

‘‘3701. Definitions……………………………………………………………………..8

‘‘3702. Free mailing privileges unaffected…………………………………………….8

‘‘SUBCHAPTER II—BASELINE RATES

‘‘3721. Determination of baseline rates…………………………………………………8

‘‘3722. Provisions relating to reduced-rate categories of mail………………………….9

‘‘3723. Automatic termination of any rate case that may be pending…………………..10

‘‘SUBCHAPTER III—RATES FOR PRODUCTS IN THE NONCOMPETITIVE CATEGORY OF MAIL

‘‘3731. Applicability; definitions……………………………………………………….10

‘‘3732. Limitations on rates……………………………………………………………..10

‘‘3733. Adjustment factor……………………………………………………………….13

‘‘3734. Action of the Board……………………………………………………………..15

‘‘SUBCHAPTER IV—RATES FOR PRODUCTS IN THE COMPETITIVE

CATEGORY OF MAIL

‘‘3741. Applicability; definition………………………………………………………….15

‘‘3742. Action of the Board………………………………………………………………16

‘‘3743. Provisions applicable to competitive products individually……………………..16

‘‘3744. Provisions applicable to competitive products collectively…………………….. 16

‘‘SUBCHAPTER V—MARKET TESTS OF EXPERIMENTAL PRODUCTS

‘‘3751. Market tests of experimental noncompetitive products…………………………..18

‘‘3752. Market tests of experimental competitive products……………………………….18

‘‘3753. Large-scale market tests……………………………………………………………19

‘‘3754. Adjustment for inflation……………………………………………………………18

‘‘3755. Conversion to permanence…………………………………………………………19

‘‘3756. Effective date………………………………………………………………………18

‘‘SUBCHAPTER VI—PROVISIONS RELATING TO THE

INTRODUCTION AND CATEGORIZATION OF PRODUCTS

‘‘3761. Criteria for the identification of noncompetitive and competitive products……….19

‘‘3762. New noncompetitive products………………………………………………………19

‘‘3763. New competitive products…………………………………………………………20

‘‘3764. Transfers of products between categories of mail…………………………………20

‘‘3765. Transition provisions for new or transferred noncompetitive products……………20

‘‘SUBCHAPTER VII—REPORTING REQUIREMENTS AND RELATED

PROVISIONS

‘‘3771. Annual reports by the Commission……..………………………………………….21

‘‘3772. Annual reports to the Commission…………………………………………………21

‘‘3773. Annual determination of compliance………………………………………………22

‘‘3774. Other reports……………………………………………………………………….23

Sec. 202. Amendments to chapter 36………………………………………………………23

Sec. 203. Postal service competitive products fund………………………………………..25

Sec. 204. USPS Corporation……………………………………………………………….27

Sec. 205. Postal and nonpostal products……………………………………………………28

Subtitle B—Related Provisions

Sec. 211. Authority for Postal Regulatory Commission to issue subpoenas………………28

Sec. 212. Qualification requirements for Commissioners and Directors…………………..29

Sec. 213. Appropriations for the Commission……………………………………………..30

Sec. 214. Change-of-address order involving a commercial mail receiving agency……….30

.

Sec. 215. Rates for mail under former section 4358………………………………………..30

TITLE III—GENERAL AUTHORITY

Sec. 301. Rulemaking authority……………………………………………………………31

Sec. 302. General duties……………………………………………………………………31

Sec. 303. Employment of postal police officers……………………………………………31

Sec. 304. Date of postmark to be treated as date of appeal in connection with

the closing or consolidation of post offices………………………………………………..31

Sec. 305. Unfair competition prohibited…………………………………………………..32

Sec. 306. International postal arrangements……………………………………………….32

Sec. 307. Suits by and against the Postal Service………………………………………….33

TITLE IV—MISCELLANEOUS PROVISIONS RELATING TO THE BUDGET AND APPROPRIATIONS PROCESS

Sec. 401. Provisions relating to benefits under chapter 81 of title 5, United

States Code, for officers and employees of the former Post Office

Department…………………………………………………………………………………34

Sec. 402. Technical and conforming amendments…………………………………………34

TITLE V—PROVISIONS RELATING TO TRANSPORTATION, CARRIAGE, OR DELIVERY OF MAIL

Sec. 501. Obsolete provisions………………………………………………………………35

Sec. 502. Expanded contracting authority………………………………………………….35

Sec. 503. Private carriage of letters…………………………………………………………35

Sec. 504. Repeal of section 5403……………………………………………………………37

TITLE VI—STUDIES

Sec. 601. Employee-management relations………………………………………………….37

Sec. 602. Recommendations on universal postal service…………………………………….38

Sec. 603. Study on equal application of laws to competitive products………………………39

Sec. 604. Greater diversity in Postal Service executive and administrative schedule management positions………………………………………………………………………..39

Sec. 605. Plan for assisting displaced workers………………………………………………39

Sec. 606. Contracts with women, minorities, and small businesses…………………………39

TITLE VII—INSPECTORS GENERAL

Sec. 701. Inspector General of the Postal Regulatory Commission…………………………39

Sec. 702. Inspector General of the United States Postal Service to be appointed

by the President………………………………………………………………………………40

TITLE VIII—LAW ENFORCEMENT

Subtitle A—Amendments to Title 39, United States Code

Sec. 801. Make Federal assault statutes applicable to postal contract employees…………40

Sec. 802. Sexually oriented advertising……………………………………………………41

Sec. 803. Allow Postal Service to retain asset forfeiture recoveries……………………….41

Sec. 804. Hazardous matter………………………………………………………………..41

Subtitle B—Other Provisions

Sec. 811. Stalking Federal officers and employees……………………………………….41

Sec. 812. Nonmailability of controlled substances……………………………………….42

Sec. 813. Enhanced penalties…………………………………………………………….42

Sec. 814. Postal burglary provisions……………………………………………………..42

Sec. 815. Mail, money, or other property of the United States…………………………..42

TITLE I—REDESIGNATION OF THE BOARD OF GOVERNORS, THE POSTMASTER GENERAL, AND THE POSTAL RATE COMMISSION

Section 101 REDESIGNATION OF THE BOARD OF GOVERNORS

This amendment changes the name of the Board of Governors of the U.S. Postal Service to the "Board of Directors of the U.S. Postal Service" to modernize and convey the business responsibility of the Directors for ensuring effective and efficient operations of the Service on behalf of the American public. The change to "Directors" is consistent with other federal entities, including, among others, Amtrak, Tennessee Valley Authority, Rural Telephone Bank, Corporation for Public Broadcasting, Federal Deposit Insurance Corporation, Fannie Mae, and Freddie Mac.

Section 102 REDESIGNATION OF THE POSTMASTER GENERAL

This amendment codifies current practice by adding "and Chief Executive Officer" to the title of Postmaster General.

Section 103 REDESIGNATION OF THE POSTAL RATE COMMISSION

The amendment changes the name of the Postal Rate Commission to the "Postal Regulatory Commission." The change is intended to recognize the greater responsibilities, authority, and role for the PRC than exists today under its more limited mandate.

Section 104 OTHER REFERENCES

The amendment provides that whenever reference is made in law, regulation, rule, document, or other United States record to the entities affected by sections 101, 102, and 103, it shall be considered a reference to the entities as redesignated.

TITLE II—NEW SYSTEM RELATING TO POSTAL RATES, CLASSES, AND SERVICES

SUBTITLE A—IN GENERAL

Section 201 ESTABLISHMENT

Chapter 37—New System for Establishing Postal Rates, Classes, and Services

Subchapter I—Definitions

3701 Definitions

The amendment provides definitions for general applicability to the whole chapter. The amendment introduces the term "product" which means any class of mail or type of postal service, thus encompassing all those classes, subclasses, and rate categories that currently comprise the mail classification system. The definition of the term "product" is critical for the application of the new regulatory regime as the classes of mail and services are regulated as either Noncompetitive or Competitive products. The term "rate" will encompass both the concepts of rates and fees. In other words, any rate or fee that appears on the Postal Service’s published "ratefold" would be subject to the rules regarding a product.

Prices of products in the noncompetitive mail category will be indexed to the "CPI," specifically the Consumer Price Index for All Urban Consumers. This index is published monthly by the Bureau of Labor Statistics of the Department of Labor. A year will be based on the fiscal year, given that almost all of the systems to track cost, revenue, and related data are geared to provide fiscal year information.

3702 Free mailing privileges unaffected

The amendment clarifies that nothing in this chapter will affect free mail as currently provided by law for 1) correspondence of members of the diplomatic corps and consuls of the countries of the Postal Union of Americas and Spain; 2) the blind and the disabled, and 3) mailing of balloting materials under the Uniformed and Overseas Citizens Absentee Voting Act.

Subchapter II—Baseline Rates

3721 Determination of Baseline Rates

Section 3721(a) requires the Postal Service to initiate an omnibus rate case, within 18 months after enactment, before the Postal Rate Commission under the recommended decision authorities and criteria in current law in Chapter 36 and provides for no exceptions. However, the recommended decision is on rates for all products in the noncompetitive category of mail and all products in the competitive category of mail. As a result, the PRC would recommend rates for all international mail matter, given that such mail will now be regulated as either a competitive or noncompetitive product. However, the Postal Service’s current authority to set international mail rates is preserved until the baseline rates are placed in effect, at which time the Service will be permitted to use its new pricing authority under Chapter 37 for international mail in the Competitive category.

The entire provision would ensure that the most current rates and fees are in effect for all products before the application of the new formula for rate setting to be established in the remainder of Chapter 37. In addition, the 18-month time frame for the Service to make its request provides sufficient preparation time for this important case.

Section 3721(b) retains the current ratemaking factors as enumerated in statute as well as the 10-month deadline for a recommended decision to be produced. However, the statutory provision for contingencies as permitted under current law would be eliminated, given that the concept of allowances for recovery of future excess costs would be in direct contradiction to the basic premise of price caps that the regulated entity bear the burden of excess costs as well as realize the benefits from any profit. In addition, the section clarifies that reduced rate mail rates must conform to the requirements described below in Section 3722.

Section 3721(c) clarifies that while a request is considered by the Commission under the current statutory guidelines of 3622, the Commission is authorized to disallow unnecessary revenues. Current law gives the PRC no specific authority to review the revenue demanded by the Postal Service. As the Commission has testified to the Congress, such authority is necessary to prevent the Postal Service from demanding a large revenue increase in the baseline rate case in order to set a high base figure for future price caps. The standard used – the "honest, efficient, and economical management" criteria of current law in 3621 — would be reviewed by the PRC in this last case.

Section 3721(d) and (e) clarify that baseline rates are those established pursuant to the process described above, except that the baseline rates must take effect no later than 18 months after the request is made, whether or not any rate change was in fact requested for a particular product, whether or not all ratemaking proceedings are completed, and whether or not the rate in effect is a permanent or temporary one. In other words, if the baseline rate case proceedings are not completed within the 18 month period following the filing of the case, a product’s rate will be the rate then in effect.

3722 Provisions relating to reduced-rate categories of mail.

The amendment mandates that reduced-rate categories of mail will receive the lesser of the rate calculated under current law, or the rate the Postal Service would offer under the price cap regime. In addition, the amendment addresses a problem that the Alliance for Nonprofit Mailers, among others, commented on regarding the fact that current law for reduced rate mailers does not provide sufficient clarity to ensure that their rates are indeed reduced an appropriate amount below the most closely corresponding regular-rate category. Therefore, the amendment changes current law for reduced-rates by modifying the requirement for an absolute contribution of one-half of the commercial mailers’ contribution to overhead costs, allowing it to be "one-half or less," as the Postal Service may prescribe. (This particular change is made to the changes to chapter 36 in Section 202 below.) Moreover, while the amendment maintains an absolute limitation that all rates must cover attributable costs as the floor, this section states that the reduced-rate mailers’ estimated costs attributable (on a per-unit basis) should not exceed the estimated costs attributable for the closely corresponding regular rate category.

3723 Automatic termination of any rate case that may be pending

If, upon enactment, any action is pending related to an on-going or previous rate case, such case is considered null and void.

Subchapter III—Rates For Products in the Noncompetitive Category of Mail

3731 Definitions

Section 3731 explains the terms that will be used in the noncompetitive category of mail. The amendment creates four "baskets" of products in order to group the various classes and subclasses of mail and postal services in the Noncompetitive Mail category with similar and like classes and services. The first basket represents the "Aunt Minnie" or "individual consumer" basket, and includes both domestic and international single piece first-class letters and cards, domestic and international single piece parcels, and special services (e.g., post office boxes in rural areas, certificates of mailing and delivery, etc.). The second basket includes all other first class mail, which is largely bulk business mail. The third basket encompasses the periodical class, and the fourth basket incorporates all standard classes of mail except for bulk parcel post, which is in the competitive category as outlined below (single piece parcels are placed in the first basket). All descriptions are as defined in the mail classification schedule as of enactment, and the lists of products in each basket will be revised by the PRC following a product transfer, reclassification, or new products introduction.

3732 Limitations on rates

Subsection 3732(a) mandates the three pricing rules that apply to each noncompetitive product:

rule (1): no postal rate can ever be priced below attributable costs;

rule (2): no postal rate can ever be greater than the CPI-X formula described in 3732c; and

rule (3): no postal rate can change in any particular year more than a specified four percentage point range of plus/minus 2 percent around the CPI-X percentage (or around a single lower percentage as determined by the Board), but in no case can a rate ever be changed that would allow it to violate rule 1 or rule 2. In other words, any pricing discretion above the CPI-X percentage in a given year could only occur for a rate that had not been set at the maximum amount allowed by rule 2 (thereby permitting use of banked pricing discretion).

As described later in Title II, violations of these rules are remedied by the PRC in the annual audit or the complaint process.

As suggested by several witnesses, the amendment uses the CPI as defined in 3701. According to the testimony of the National Regulatory Research Institute, a price index should have four qualities: (1) it should be relatively stable over time, (2) it should not be closely correlated with the actual cost changes for an individual regulated entity, (3) it should be easily measurable or publicly available, and (4) it should reflect, as closely as possible, the average cost changes for the industry within which a regulated entity operates. In practice, most price cap plans use an economy-wide price index. This is true for the U.S. telecommunications industry, the United Kingdom’s public utility industries, and foreign postal administrations. In fact, eight foreign postal administrations’ price cap plans use an index similar to CPI.

A feature that is unique to the CPI is that it is never revised once published; this aspect of stability makes the CPI an excellent choice for indexation because it avoids the potential for confusion that might result from a price index that is subject to multiple revisions subsequent to its initial release.

Subsection 3732(b) describes the absolute minimum rate permitted for each product as attributable costs.

Subsection 3732(c) outlines rule number 2, the procedure for computing the maximum rate allowable for each product in the Noncompetitive Mail category. The maximum rate of a postal product in any year is determined by multiplying the previous year’s maximum rate by the percentage change in CPI for that year, adjusted by the adjustment factor (the "X" factor). For example, if CPI is 4 percent, and the adjustment factor is -1 percent, the percentage rate to be applied will be 3 percent. If this formula is applied to, say, the first-class one-ounce stamp rate of 32 cents, then the new ceiling for this rate would be 32.96 cents.

The maximum rate cap when this new pricing regime takes effect for the first time is the baseline rate established for each product as noted above. This subsection also notes that for the first basket only (comprised of single piece letters, cards, parcels and special services), the maximum rate computed under this subsection can be rounded to the nearest cent, with a half of a cent being rounded to the next higher cent. For instance, in the example above of a 3-percentage point cap, the 32-cent cap could be rounded to 33 cents even though the maximum rate adjustment was .96 of a cent and not 1-cent. However, when calculating the rate cap the next year, the new percentage will be applied to 32.96 cents and not 33 cents.

This subsection also explains that the change in CPI for any year will be equal to the percentage (either positive, negative, or zero), that CPI exceeds the CPI rate of the previous year. This calculation is based on the average of the CPI for the 12-month period ending June 30th of each year. Therefore, the system is symmetrical in that maximum rates must go down in periods of deflation. The adjustment factor is determined under 3733.

3732(d) explains rule number three, the range allowable for any change in a rate in a given year. No rate for a product in the noncompetitive category can change in any particular year more than a specified four percentage point range of plus/minus 2 percent around the CPI-X percentage (or around a single lower percentage as determined by the Board), and in no case can a rate ever be changed that would allow it to violate rule 1 (minimum) or rule 2 (maximum). In other words, any pricing discretion above the CPI-X percentage could only occur for a rate that had not been set at the maximum amount allowed by rule 2 in a previous year.

By instituting this system, the amendment adopts the recommendations of both the Main Street Coalition for Postal Fairness and the American Business Press to implement a band that is only four percentage points wide, although the amendment adds the additional level of rate protection to ensure that no rate can ever exceed the level of CPI-X (the plus 2 percent), unless pricing discretion went unused previously (i.e., banked). Even in the situation where unused pricing discretion is used, the maximum rate derived by rule 2 cannot be violated. The Postal Service would be free to choose a percentage lower than the CPI-X derived formula for that year, and all noncompetitive rate changes would then be within this lower four percentage point wide band.

For example, if the cap is 3 percent, and the Postal Service chooses to raise any product’s rate by the maximum 5 percent, then the bottom of the four-percentage point range is plus 1 percent. (Note in this example, that if any rate change exceeds the 3 percent cap, that only occurs because the rate was not increased to the CPI-X cap in an earlier year.) With the same cap of 3 percent, the Postal Service can choose a lower percentage for that year, but if it chooses a lower percentage, than the maximum increase or decrease for all Noncompetitive rates would still be within the four percentage point range (plus/minus 2 percent) around the lower percentage.

To illustrate, if the cap is 3 percent, the possible range for that year (assuming there are rates below the maximum allowed in rule 2) could be <+5% to +1%>, or any lower four percentage point range, such as <+2% to -2%>, <-3% to -7%>, etc., down as far as the Postal Service deems appropriate, but without violating any rate’s minimum and maximum (rules 1 and 2). This approach would offer significant flexibility to the Postal Service, while protecting mailers from widely disparate treatment that could occur under a typical price cap plan that permits large bands of deviation above and below the cap, and/or simply requires an averaging out of all rate changes within a basket. The amendment provides all mailers an easy to calculate and predictable approach to rate changes.

In essence, the amendment proposes a price cap plan for the Postal Service that strongly imposes the concepts of fairness and equity, while permitting much more pricing flexibility than provided under current law for the Service to confront a dynamic postal and delivery services sector. Moreover, such an approach creates real incentives for cost economy and efficiency by allowing the Service to reasonably change prices without the explicit permission of the PRC, and thereby earn the profits generated as long as rates remain within the PRC imposed caps and the allowable range of change. In contrast, the current ratesetting process provides little or no incentive for the Postal Service to control its costs because all costs are ultimately passed through to the consumer, regardless of how efficiently or inefficiently the Postal Service operates.

3733 Adjustment factor

Subsection 3733(a) explains that a rate making cycle, the period of time between Commission proceedings to determine the single adjustment factor (the "X" factor), lasts 5 years. Thus, the adjustment factor is in place and automatically adjusts the ceiling on rates each year for 5 years before the Commission must review the adjustment factor again. Several economists testified that it is best for the regulator to fix the adjustment factor and not modify it for a reasonable number of years because more frequent changes will undermine cost incentives. This subsection permits the Commission to advance the implementation of the initial 5-year cycle if the requirements for baseline rates are met.

Subsection 3733(b) establishes the process for determining the adjustment factor. Beginning 12 months before the end of a five-year rate making cycle, the Commission will initiate a hearing, similar to the omnibus rate case hearings that currently occur, to render a final decision on the adjustment factor. The very first such case will commence one month after the baseline rates have been established. The rules of procedure as well as printing and notice requirements mirror the same ones that currently exist with respect to an omnibus rate case, including judicial appeals.

The Commission must render its decision by the end of the year before the commencement of the new rate making cycle; however, an exception from the one year deadline for establishing the adjustment factor is added for cases of Postal Service non-production of data, retaining a provision from current law. Although the PRC is provided subpoena authority with enforcement by U.S. district courts, litigation arising from enforcement of a subpoena may take some time. If data withheld by the Postal Service is necessary to prepare a reasoned decision, then fixed deadlines could force the PRC to render a decision without necessary data. This provision will likely be rarely used, however, since the amendment, as outlined below in section 211, provides a process for protecting commercially sensitive information.

Subsection 3733(c) states the PRC will assign an adjustment factor based solely on cost savings from productivity, operating as a pure productivity offset ("the best evidence of likely Postal Service productivity, and of specific sources of cost savings to the Postal Service, during the ratemaking cycle to which an adjustment factor is to apply."). Economists’ testimonies underscored that the theory of price caps is clear on the fact that the adjustment factor should be a pure productivity adjustment in order to promote the efficiency benefits offered by price cap regulation.

Testimony also underscored that a positive adjustment factor would be unusual for a price cap system because it would provide such a weak restraint. Price caps have been applied primarily in cases of companies whose productivity capabilities exceed those of the economy as a whole and hence have negative adjustment factors. As the American Postal Workers Union has testified, postal workers’ productivity is rising faster than that in the economy at large. Moreover, the Mailers Coalition for Postal Reform stated its strong belief that the PRC should be constrained to apply only a negative adjustment factor so as to always ensure rate changes below inflation. In principle, however, companies whose productivity is expected simply to match that of the economy could have a zero offsetting adjustment factor; if that represents the best practice for the company, then it also represents the correct target in that there are no hidden cost savings.

In the amendment, the productivity offset can be no greater than zero, unless the PRC finds that a positive value is needed because 1) of a new and significant statutorily imposed funding obligation that is not funded through appropriations, and/or 2) the PRC determines that a positive adjustment factor is required "to enable the Postal Service under best practices of honest, efficient, and economical management to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States." In this latter case, a PRC determination to set a positive adjustment factor must be based on a strengthened revenue requirement standard – "honest, efficient, and economical management" – that is found in current law (3621) but is now self-determined by the Postal Service rather than reviewed by the PRC. The amendment states that a PRC determination of the revenue requirement standard shall take into account costs anticipated by the Postal Service for the upcoming rate cycle, such as wages, benefits, and transportation costs.

Subsection 3733(d) mandates, as suggested by numerous witnesses, that the PRC establish a single adjustment factor that applies uniformly to all baskets and all products within each basket. As a practical matter, it will be sufficiently challenging to determine a single adjustment factor, without embarking on a process of selecting different factors for each basket and its particular combination of products. In practice, a price cap plan typically has a uniform adjustment factor that represents an averaging across the entity’s activities.

Subsection 3733(e) states that the adjustment factor will be expressed as a percentage, thus permitting an easy determination of the percentage to be applied to calculate rate changes. The adjustment factor will be added to or subtracted from the change in the CPI, as the case may be.

Subsection 3733(f) permits the Board of Directors under a majority vote of those then holding office to request the PRC to render a decision on changing the adjustment factor to be applied to the current rate making cycle, but only when the PRC finds that Postal Service faces one or both of the same reasons provided for establishing a positive adjustment factor. Such a change would supplant the current adjustment factors, remain in effect for the remainder of the 5-year cycle involved, and could be considered more than once during the same rate making cycle. The PRC decision is reached in the same manner as the adjustment factor case (i.e., with an exclusive focus on the adjustment factor as a productivity offset), except that in this case, the PRC must first decide whether it finds a change is warranted in light of the "honest, efficient, economical management" standard. The case is limited to six months rather than 12. As with the five-year adjustment factor cases, exigent case decisions of the PRC would be subject to appellate review consistent with current practice under 3628.

Thus, a request made under this section may only be presented to the PRC upon written certification by the Board 1) of a new and significant statutorily imposed funding obligation not fully funded through appropriations, or 2) that the total amount of postal revenue anticipated will be insufficient to enable the Postal Service "under best practices of honest, efficient, and economical management to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States." However, irrespective of the Board’s finding, the PRC retains final authority to decide whether or not to grant a change, and if so, determine the actual change that will be made to the adjustment factor.

Subsection 3733(g) states that nothing in the statutory requirements for the adjustment factor should affect any collective bargaining agreement, thereby making explicit that the PRC is not to interfere with collective bargaining.

3734 Action of the Board

Subsection 3734 establishes that the Board, with the written concurrence of a majority, may establish rates within the noncompetitive category within the pricing rules outlined above. Except for the exigent cases described in 3733(f), which would permit a one time change, this section limits the rate changes to once per year, with all new rates taking effect at the same time, and states that the Board must publish such a decision in the Federal Register at least 45 days before the effective date of any such change, complete with a statement of explanation and justification. The legality of Board pricing decisions will be subject to the annual audit and complaint procedures/remedies described later in Title II.

Subchapter IV—Rates For Products in the Competitive Category of Mail

3741 Applicability; definition

Subsection 3741 defines the present mail classes and products included within the competitive mail category. The Competitive Mail category includes those classes of mail and services known in the mail classification schedule at the time of enactment as follows (and not including any product assigned to the noncompetitive category of mail as specified earlier):

• priority mail
• expedited mail
• mailgrams
• international mail, and
• parcel post

The term "costs attributable" is defined for the subchapter as the direct and indirect postal costs attributable to a competitive product. The list of products in the category will be revised by the PRC following a product transfer, reclassification, or new products introduction.

3742 Action of the Board

Subsection 3742 establishes that the Board, with the written concurrence of a majority of all, will have the authority to establish rates for all products in the Competitive category of mail, and sets out the criteria that the rates must be set in accordance with the requirements of 3743 and 3744. Like noncompetitive rates, the legality of Board pricing decisions will be subject to the annual audit and complaint procedures/remedies described later in Title II. As suggested in testimony by the PRC, among others, the goal of increased flexibility simply requires notice in the Federal Register for published rates, and the Service is otherwise free to change a competitive rate or rates as often as it deems appropriate. The pricing authority for competitive products does not take effect until the first year beginning on or after the date when baseline rates are set, although an exception is made for international mail products in the competitive category. As described in Title III, the Postal Service’s current authority to set international mail rates is preserved until the baseline rates are placed in effect, at which time the Service will be permitted to use its new pricing authority under Chapter 37 for international mail in the Competitive category.

3743 Provisions applicable to competitive products individually

The amendment allows the Postal Service to charge any rate for a competitive product subject to two minimum rate requirements. The first is described in 3743, and applies to competitive products individually: Rates must cover the direct and indirect postal costs attributable to such product.

If revenues from a competitive product fall short of covering attributable cost, the shortfall is treated as a loss to be made up in successive years from competitive products as a whole. If a product persistently fails to cover attributable costs, it may be ordered withdrawn by the PRC, after taking into account all relevant circumstances and offering an opportunity for a hearing on the record in accordance with current practice. Discontinuance of a product does not relieve the Postal Service of the obligation to pay losses incurred by that product from future revenues earned in the competitive category.

3744 Provisions applicable to competitive products collectively

Second, competitive products collectively must annually contribute as a group at least an equal percentage of institutional costs as all non-competitive and competitive products combined. As with losses on competitive products individually, failure to make the appropriate contribution to institutional costs from competitive products collectively must be made up in successive years from competitive products as a whole.

The percentage required by 3744 is derived by determining each year the ratio that total revenues bears to total costs. For example, if competitive products’ revenue-to-costs ratio is 150 percent, and the cost coverage ratio for all competitive and noncompetitive products combined is 145 percent, the Postal Service would be in compliance with the requirement. According to Postal Service officials, the Service would be in compliance with this requirement if it were in effect today.

However, in response to comments from the Postal Service, among others, that the equal cost coverage rule does not take into account intrinsic differences in the percentage of overhead costs appropriate to noncompetitive and competitive postal products, the amendment authorizes the PRC, by rule, to exclude such costs as the PRC considers to be uniquely or disproportionately associated with either category of products. This rule will ensure that the required cost coverage ratios will appropriately compensate for any significant and objective differences in the nature and composition of costs attributable to competitive and noncompetitive products, respectively. For example, purchased international transportation is a large cost for international mail that is not reflected in the cost basis of domestic mail; in effect, the PRC could allow the Postal Service to "pass through" such costs without institutional contribution.

Moreover, the PRC, as part of only the first adjustment factor case, may provide that the requirement for equal proportion coverage be phased in over a period not to exceed the conclusion of the second adjustment factor case (i.e., five years). This phase-in authority would afford the Postal Service an opportunity to increase efficiency to competitive market levels. If the PRC grants this relief, the PRC must review the continuing need for it annually during the phase-in period.

The Postal Service enjoys the rights and powers of a government entity, along with its statutory monopoly over the delivery of letter mail. Therefore, the Service should not compete with private companies while using non-competitive products to unfairly pay for its overhead costs; in other words, under the cost coverage rule, the Postal Service will not be allowed to load a disproportionate share of costs on users of non-competitive products.

The equal cost coverage rule of the amendment is a fair and equitable rule that (1) allows the Postal Service flexibility to price individual competitive products as it sees fit without a PRC determination as to what is a reasonable contribution (a provision of the original bill that some witnesses strongly objected to), while (2) at the same time preventing the Postal Service from loading an unfair proportion of overhead costs on to its noncompetitive customers. The equal cost coverage rule is similar to the approach used in 1986 by the FCC in dividing the costs of telephone companies between competitive and noncompetitive activities, as well as recent European Union postal legislation on this matter, legislation that was enacted and applies to relatively inefficient postal systems in countries such as France, Spain, and Italy.

Subchapter V—Market Tests of Experimental Products

Beginning with the first year on or after the date baseline rates are set, the amendment would generally provide for market tests which are exempt from specific price cap/competitive category requirements as outlined in this subchapter. The basic control on market tests will be PRC oversight with specific rules on the tests’ proper scope, which the amendment tightens in response to comments from mail users such as newspaper organizations. The market test rules are set out in three sections dealing with (1) market tests for noncompetitive products, (2) market tests for competitive products, and (3) large scale market tests, which require greater scrutiny by the PRC. The market test rules would be dealt with as follows (per section 3754, the dollar thresholds would be indexed to CPI in order to allow for reasonable increases in inflation):

3751 Market tests of experimental noncompetitive products

The amendment provides for market tests of noncompetitive products which, from the customer’s standpoint, are substantially different from existing products offered by the Postal Service within the 2-year period preceding the start of the test. The tests must meet the criteria of a noncompetitive product as outlined in section 3761 below. In addition, market tests cannot cause unreasonable market disruption, and are limited to two years in duration and $10 million in revenues per year, with the possibility of extension to a third year with PRC approval. The Postal Service must file with the PRC and publish notice of the test 30 days before its initiation. Market tests that do not meet these criteria may be stopped by the PRC, and are reviewed by the PRC on complaint or through the annual audit.

The amendment exempts such tests from price cap rate and classification rules, although the Postal Service would still have to provide summary information in the annual reporting requirements to the PRC described in Subchapter VII.

3752 Market tests of experimental competitive products

Competitive products’ market tests would have to meet the exact same standards and limitations just described for non-competitive market tests, except the market tests would be exempt from PRC remedies (in the complaint process, annual audit, or ordering of discontinuance) related to failure to cover attributable costs, which is the only specific legal standard for individual competitive products. However, losses incurred in competitive product market tests remain as costs that must be covered from the competitive products category as a whole. In addition, in the notice process, the Postal Service will receive confidential treatment for sensitive information (as outlined later in Title II) that is protected under current law.

3753 Large-scale market tests

Larger scale market tests, up to $100 million in annual revenues, would be permitted only under rules adopted by the PRC to safeguard the public interest in preventing unfair or disruptive competition, while at the same time balancing the Postal Service’s interest in the development and testing of new products with a minimum of regulatory impediments. The same exemptions would apply from certain pricing and classification requirements.

3755 Conversion to permanence

Following a decision to make a new product permanent, it must follow the rules for introducing new products as described in Subchapter VI, which addresses the need to classify new products, and in the case of noncompetitive products, to set baseline rates.

Subchapter VI—Provisions Relating to the Introduction and Categorization of Products

3761 Criteria for the identification of noncompetitive and competitive products

Subsection 3761 provides that except for the market testing authority of Subchapter V, no product may be offered until it has been assigned to the noncompetitive or competitive category of mail, and if a non-competitive product, the appropriate basket. While reclassification rules as exist in current law are maintained for the noncompetitive category, the subchapter provides rules for introducing (1) new noncompetitive products, (2) new competitive products, (3) transfers of products between categories, and (4) transition provisions for assigning a new maximum rate under the price cap regime for new or transferred noncompetitive products.

The amendment proposes criteria for the two categories that reflects the Federal Communications Commission’s (FCC) approach to defining "dominant" carriers for the purpose of regulation. The FCC standard distinguishes between dominant and nondominant providers in a given group of services or baskets of services. When the FCC deemed AT&T nondominant in some services, it streamlined regulatory requirements for AT&T for those services but not for others.

The criteria is as follows: "The noncompetitive category of products shall embrace all postal products in the sale of which the Postal Service exercises sufficient market power that it can effectively set the price of the product substantially above costs or raise prices significantly without risk of losing business to other firms offering similar postal services, or that it can effectively set the price below competitive costs to forestall entry by new competitors or to eliminate existing competitors. The competitive category of products shall embrace all postal products not in the noncompetitive category."

3762 New noncompetitive products

This section addresses the need to classify and set baseline rates for new noncompetitive products. The amendment requires the Postal Service to file a request that would be considered in the same manner as the current recommended decision process for rate requests and classification, including action by the Directors and appeals. In one recommended decision, the PRC would apply the criteria in current law for the recommended baseline rate, and the criteria in current law for the recommended classification.

3763 New competitive products

Given the bill’s objective of leveling the playing field for competitive products, the amendment permits the Service to offer a new competitive product or make changes in the competitive category’s classification schedule in accordance with the following requirements: all actions under this subsection must meet the criteria of a competitive product in 3761, and to the extent a rate is being established, meet the costs attributable test. The Postal Service must notify the PRC and publish in the Federal Register notice of the change at least 30 days before the action occurs, but in the notice process, the Postal Service will receive confidential treatment of sensitive information (as outlined later in Title II) that is protected under current law. The PRC is authorized to order the proposed action canceled if it does not meet the requirements of this subsection.

3764 Transfers of products between categories of mail

Because this is a regulatory, not a commercial, determination, final authority to determine the non-competitive or competitive status of a product is assigned to the PRC using the criteria outlined in section 3761. This approach was strongly supported by various comments received by the Subcommittee, including ones from the Mailers Coalition for Postal Reform. The PRC would make its decision after a public hearing on the record, and the decision can be appealed under section 3628(a). The revision also allows the transfer both ways, although products covered by the postal monopoly cannot be transferred from the noncompetitive category (the postal monopoly does not include services permitted by 39 USC 601). In making any decision, the PRC is mandated to give due regard to the availability and nature of enterprises in the private sector engaged in the delivery of the product involved, as well as the views of those who use the product on the appropriateness of the proposed transfer. As recommended by the Postal Rate Commission in comments on the bill, transfers may involve the division of existing subclasses between competitive and noncompetitive products.

3765 Transition provisions for new or transferred noncompetitive products

This section outlines the provisions for assigning the maximum rate and maximum range initially allowable when a product becomes assigned to the noncompetitive category of mail. For the first year of a new noncompetitive product that is transferred, the maximum rate is the rate then in effect and will be treated as its baseline rate. For a new noncompetitive product that is introduced via section 3762 above, the maximum rate will be the baseline rate determined under that section. The initial rate will also be treated as the range of allowable change for the first year the product is introduced.

Subchapter VII—Reporting Requirements and Related Provisions

3771 Annual reports by the Commission

The amendment requires that the PRC provide an annual report to the President and the Congress concerning its operations. As part of this report, the PRC is directed to prepare an estimate of public service costs borne by the Postal Service including universal service costs, revenue-forgone costs, and other costs (e.g., law enforcement).

3772 Annual reports to the Commission

Subsection 3772(a) provides that the Postal Service must submit information to the PRC, no later than three months after the last day of each fiscal year, which would demonstrate that the rates in effect for all products in each category during the year are in compliance with the requirements of this title. The Postal Service Inspector General would conduct the audit prepared for PRC review.

Subsection 3772(b) mandates that at the same time that the Postal Service submits the above information regarding each products’ costs, revenues, and rates, the Service must also submit to the PRC information on the quality of services for each product in the noncompetitive category including market information, measures of speed and reliability of postal services, and customer satisfaction. Quality of service information on competitive products are beyond the regulatory responsibility of the PRC. In this manner, the amendment responds to concerns raised by witnesses representing users of the Periodicals and Standard classes of mail by mandating that the Postal Service must develop measures for and report on "the speed and reliability of postal services" in all classes of mail in the noncompetitive category.

Subsection 3772(c) provides that the Service can provide summary data on the required costs, revenues, and quality of service for market tests under $10,000,000 outlined in sections 3751 and 3752, and such data as the PRC requires for large scale market tests established under section 3753.

Subsection 3772(d) states that the PRC will have access to all the working papers and supporting materials of the Postal Service and the Inspector General in connection with the required reports.

Subsection 3772(e) provides that the PRC, in developing regulations prescribing the content and form of the required annual reports, shall consider the need to provide the public with adequate information to justify the lawfulness of rates charged, the need to avoid unnecessary or unwarranted administrative effort or expense on the part of the Postal Service, and the need to protect the confidentiality of commercially sensitive information. As a result, the amendment authorizes the PRC to specify what information will be provided as either (1) public reports or (2) non-public annexes and supporting papers, in order to accommodate the confidentiality protections detailed below.

The amendment also contains a provision for the PRC, on its own motion or on request from an interested party, to initiate a proceeding to improve the quality, accuracy, or completeness of postal service data required by the annual audit. This provision thus authorizes the PRC to mandate how the Postal Service will measure the attribution of costs and revenues, as well as quality of service data. Such a provision is needed because operations and data collection procedures change over time, and the attributions form the fundamental basis of many of the required reports, which are used to assess the lawfulness of rates.

3772(f) incorporates the Postal Service’s ability to obtain confidential treatment for information that is protected from disclosure under current law, in accordance with the provisions outlined later in Title II.

3772(g) requires the Postal Service to provide the PRC, as part of information to be examined in the annual audit, specific reports that are submitted to Congress including the comprehensive statement required under 2401, and the performance plan and program reports required under the Government Performance and Results Act. As outlined below, the Postal Service will also be required to provide the Commission reports detailing the activities of its private law corporation, and operations of the Competitive Products Fund.

3773 Annual determination of compliance

Subsection 3773 establishes the definition of "profits" for any year, meaning the amount by which total revenues of the Postal Service attributable to that year exceeds total cost of the Postal Service attributable to that year. This will be determined based on the report of cost, revenues, rates required by 3772(a).

The amendment also provides that, after receiving the appropriate information and submissions from the Postal Service in 3772, the PRC will provide an opportunity for public comment on the public reports. The PRC will make a written determination within 90 days whether any rates and fees were not in compliance with the law, or whether performance goals or any service standards were not met. Should any noncompliance be found in a timely manner, and depending on the seriousness of the noncompliance, the Commission may order that up to 50 percent of the previous year’s profits be set aside to defray future increases in rates and fees for products in the noncompetitive category of mail or to reduce rates and fees in effect for those products. The next comprehensive report must include a statement of the measures which have been or will be implemented to comply with the order and the amount of savings passed on to the mailers, as compared to the amount of savings scheduled to have been passed on. In addition, the Service must include an explanation of what measures will be taken to reconcile the difference, if any.

In addition, the PRC may order any remedy available to it under the complaint process of 3662 (described below) if it finds any violation of law in the annual audit.

If full compliance is determined or if the PRC does not make a timely determination, then up to 100 percent of the profits from the previous fiscal year may be used in accordance with the factors enumerated in 3773(f) that the Service must take into account when deciding how to use any profit earned. This includes authority for cash bonuses for officers and employees of the Postal Service as long as they are paid in a fair and equitable manner. (Bonuses may always be paid out of profits in any year recognizing the possible 50 percent set-aside.) The amendment states that bonus payments cannot exceed the salary cap unless total profits surpassed one percent of total revenues. If any bonuses cause a recipient to exceed the pay cap, then the Postal Service must submit in its comprehensive report the name of the person, the amount of the bonus, the limitation of the pay cap and by how much it was exceeded. However, the legislation does not create an entitlement to receive bonuses or that profits be used for bonuses.

3774 Other reports

The amendment requires the PRC to report to the President and the Congress, at least every 6 years, on the operation of the ratemaking system established under chapter 36 and 37 of title 39, with recommendations for any legislative or other measures necessary to improve the effectiveness or efficiency of the system. In this way, a formal and regular review process is established to revisit how well the ratemaking framework is operating and consider any necessary modifications to service baskets, pricing bands, and other design features of the price cap plan.

Section 202 AMENDMENTS TO CHAPTER 36

Section 202 outlines those authorities of the ratemaking provisions of current law that will continue to operate, as modified, after implementation of the new regime established by chapter 37. For example, the process for establishing and modifying mail classification in the noncompetitive category, as well as the law relating to reduced rates, will continue. The complaint process would be strengthened, as described in subsection (g) below. In addition, the amendment imposes a 10-month deadline on noncompetitive reclassification or new product cases, the deadline applicable under current law to reclassification cases involving changes in rates.

Subsection (e) modifies the current provisions of section 3628 providing direct appeal to the courts of appeal. 3628(a) reflects current law and covers appeals of recommended decisions on classification or a new product’s baseline rate/classification, as well as any PRC decision on the adjustment factor or product transfer between categories. The new 3628(b) provides for appeals of all other final orders of the PRC to the courts of appeal in accordance with chapter 158 of title 28. This is the same process for appealing orders of the Federal Communications Commission as well as numerous other regulatory agencies. Any entity including the Postal Service could appeal a PRC orders. Indeed, the Postal Service like any other entity would have the right to appeal, among other decisions, PRC orders in complaint cases, a PRC order to sequester profits in the annual audit review, or a PRC order that certain competitive products be withdrawn.

Subsection (f) repeals the little-used provision of current law, section 3641, dealing with temporary changes in rates or classes. As noted, the amendment imposes a 10-month deadline on reclassification cases, the deadline applicable under current law to reclassification cases involving changes in rates. This repeal and its replacement take effect when baseline rates are established.

In its place, the new 3641 provision authorizes negotiated service agreements in the noncompetitive category. The amendment structures the negotiated service agreements’ provisions in a manner that is fair, equitable, and nondiscriminatory to all mailers, large or small.

Under the negotiated service agreement provisions:

• the agreement cannot become effective until approved by the PRC after a 90 day period of public comment and review, and is subject to cancellation by the PRC under the complaint process described below for violation of the 3641 provisions;
• the agreement must be for a term not to exceed 3 years;
• the PRC must find that rates and fees payable during the term of the agreement are reasonably calculated to yield to the Service total revenues that equal or exceed the sum of (1) the direct and indirect postal costs attributable to services performed by the Service under the agreement; and (2) a portion of all other costs of the Service that are equal, on an average unit basis, to the portion of such costs reasonably assignable to the classification or classifications of mail service most similar to the services performed under the agreement;
• the PRC may only approve an agreement if the agreement can reasonably be expected to result in net benefits to the operation of a nationwide postal system;
• the agreement must require the contracting mail user to perform certain functions that are in addition to or greater than those required of mailers under the mail classification schedule;
• the agreement must provide for the payment by the contracting mail user of liquidated damages to the Service for nonperformance or breach of any terms of the agreement;
• the agreement must not preclude or materially hinder similarly situated mail users from entering into agreements with the Service on the same, or substantially the same, terms and conditions;
• the Service must be willing and able to enter into such agreements with other similarly situated mailers; and
• the PRC must adopt the rules governing the implementation of these requirements through a formal rulemaking; PRC decisions can be appealed under 3628(b).

As numerous mailers testified, it is important for the Postal Service and its customers to arrive at negotiated agreements that provide mutual benefit for mailers and the Postal Service. Such agreements are not volume-based discounts. As outlined above, negotiated service agreements are PRC approved arrangements between the Postal Service and its customers that call for a level of worksharing, cost-reducing, and productivity-improving activities that go beyond those required in the regular mail classification schedule. These agreements are useful mechanisms for reducing postal costs in an efficient manner.

202 (g) provides for a greatly strengthened rate complaint procedure. In essence, the complaint procedure replaces prior review of rates as the main procedure for responding to public complaints of pricing, service, or unlawful actions by the Postal Service. For example, as suggested by the National Newspaper Association, the PRC review extends to complaints related to the nondiscrimination provisions of current law, 403(c).

The revision would require the PRC to investigate or dismiss complaints; it would borrow the approach for handling complaints at the FCC, except that it would add a 90-day time limit for the PRC to either begin a hearing on the record to investigate the complaint or dismiss it. As noted later in Title II, the PRC’s subpoena authority extends to the complaint process.

In subsection 3662(c), the language details the remedies available to the PRC for various violations of the law, including provisions related to classifications, rates, negotiated service agreements, non-discrimination among or to mail users, market tests, and as described below, unfair competition rules, prices charged by the Service to the private law corporation, and nonpostal products. For instance, the PRC could order the Postal Service to adjust rates to lawful levels for those that are set below attributable costs.

In cases of deliberate noncompliance with the law, the PRC would be authorized to levy fines based on the seriousness, nature, circumstances, and extent of the noncompliance. Fines resulting from the provision of competitive products would be paid out of the Competitive Products Fund, and all fines would be provided to the general Treasury fund. As noted above in 3773, the PRC’s authority for ordering remedies of violations of law would also extend to any findings in the annual audit review.

Section 203 POSTAL SERVICE COMPETITIVE PRODUCTS FUND

In addition to the current Postal Service Fund, on the first day of the first year beginning on or after the date when baseline rates are set, the amendment creates a second off-budget fund within the Treasury solely for the revenues and expenditures associated with competitive products.

The intent of this section is to level the playing field for both the Postal Service in its provision of competitive products and those competing against them, as well as protecting the interests of postal consumers in the noncompetitive category and taxpayers. For example, the Postal Service obtains the ability to invest or borrow without unnecessary time constraints which merely limit the ability to take advantage of favorable market conditions; however, the amendment mandates that the Postal Service cannot invest in any commercial entity other than the private law corporation authorized by section 204. Similarly, when borrowing, the amendment requires the Service to take advantage of the speed, flexibility, innovation, and requirements of the open market to serve its financial needs for competitive products. In doing so, the Service will be competing fairly with those in the private sector who also must borrow with the requisite constraints imposed by the financial markets. Yet obligations issued by the Postal Service under this section shall not be obligations of, nor shall payment of the principal thereof or interest thereon be guaranteed by, the Government of the United States, and the obligations shall so plainly state.

Essentially, the Postal Service can operate this fund in its discretion, but it cannot obtain loans from Treasury. It cannot invest in any other commercial entity, as defined in subsection (g), other than the private law corporation that may be established under section 204. The fund can borrow money to provide competitive products by pledging the assets of the fund and its revenues and receipts; however, such loans are not obligations of the United States. The aggregate amount of any obligations outstanding at any one time from both the Competitive Products Fund AND the Postal Service Fund cannot exceed the $15 billion limit of current law. The Competitive Fund’s access to the Postal Service Fund is severed. The fund begins with an amount, set by the PRC, equal to the net value of assets and liabilities currently employed in providing competitive products.

The Postal Service must prepare an annual report to the Secretary of the Treasury concerning the operation of this Fund, and it must address such matters as risk limitations, reserve balances, allocation or distribution of moneys, liquidity requirements, and measures to safeguard against losses. A copy of the report must also be provided to the PRC as part of the required annual reports.

A judgment against the Postal Service or the Government of the United States arising out of activities of the Postal Service in the provision of competitive products (as determined under regulations which the PRC shall prescribe, in consultation with the Postal Service) shall be paid by the Postal Service out of the Competitive Products Fund.

Section 203 also makes appropriate technical and conforming amendments to current law to ensure that the rules regarding the existing Postal Service Fund are consistent with the establishment of the Competitive Products Fund. Current law allows the Postal Service, with the approval of the Secretary of the Treasury, to use the Postal Service Fund to make equity investments in other businesses. Given that the Competitive Products Fund cannot invest in any other commercial entity than the private law corporation established in section 204, the amendment modifies current law to bar Postal Service Fund investments in any commercial entity.

Section 204 USPS CORPORATION

The amendment clarifies the authority of the Postal Service to provide nonpostal products by allowing the Postal Service to continue doing so if the Board chooses, but requiring it to provide such products only through a private corporation as outlined in this section. As of the first day of the first year beginning on or after the date when baseline rates are set, the amendment authorizes the Postal Service to establish a private for-profit corporation. If the Corporation offers shares, they may be purchased only by the Postal Service’s Competitive Products Fund to the extent the Postal Board deems appropriate. The entire proposal is adapted from the organizational provisions of Conrail, Comsat, and the United States Enrichment Corporation. This Corporation is not an agency, instrumentality, or establishment of the United States, a Government corporation, or a Government-controlled corporation; moreover, it is considered wholly off budget and not part of the Postal Service. Again, it is a private, for-profit corporation.

The Corporation will be a vehicle for the Postal Service to (1) engage in strategic alliances in or with private companies and (2) offer nonpostal services. The funds available to the Corporation are limited to funds invested from the Competitive Products Fund and loans obtained on the credit of the Corporation itself. Financial obligations of the Corporation shall not be obligations of, or guaranteed as to principal or interest by, the Postal Service or the United States, and the obligations shall so plainly state. No action shall be allowable against the United States based on actions of the Corporation.

As with a private company, the Corporation is authorized to offer any postal or nonpostal product it deems appropriate, other than a product covered by the postal monopoly; acquire shares of individual private companies; and participate in joint ventures with individual private companies.

The Corporation may purchase goods and services from the Postal Service, except that the Corporation must pay the Postal Service the same amounts for such goods or services as would be paid by similarly situated mailers or, if the goods or services are not offered to the public by the Postal Service, amounts which represent fair market value.

The PRC will enforce compliance with the requirement that the Service charge the Corporation the appropriate amount. The Postal Service is required to include the activities of the Corporation in the annual audit reports to the PRC to the extent the Corporation engages in postal services in conjunction with the Postal Service, and in the form and content that the PRC will prescribe. Such reports must include sufficient information to demonstrate that the Service is charging the correct amount for goods and services provided to the Corporation. If noncompliance is found, the PRC is authorized to order corrective action, including adjusting Service charges to the Corporation to lawful levels and fining the Service for deliberate noncompliance.

The Corporation’s board of directors shall be named by the Board of the Postal Service. The restrictions on post-government employment set out in section 207 of Title 18 will not apply to the acts of an individual done in carrying out official duties as a director, officer, or employee of the Corporation if the individual was an officer or employee of the Postal Service (including a Director) continuously for a period of 12 months or more during the 24 months prior to employment with the Corporation.

Section 205 POSTAL AND NONPOSTAL PRODUCTS

The amendment clearly defines the ability of the Postal Service to provide nonpostal products, and makes explicit what is implicit in current law: that the regulatory scheme is limited to postal products.

A "postal product" is defined as any service that provides for physical delivery of letters, printed matter, or packages weighing up to 70 pounds, including physical acceptance, collection, sorting, or transportation services ancillary thereto; and a "nonpostal product" would be defined as anything that does not fit the postal product definition. The proposed definition emphasizes physical delivery as a necessary constituent to the concept of a "postal product." If the Postal Service organizes a business for collecting parcels and forwards them to other companies to deliver, this would not seem to be a "postal" service as that term is normally used. Collection and forwarding of items appears to be a "postal" business only if provided in conjunction with delivery. Similarly, the definition refers to physical services provided incidental to delivery. Electronic collection of and printing of mail appears to be a "pre-postal" business, although the Postal Service could contract with others, including the USPS Corporation, to provide such services.

An exception is made for nonpostal products that the Postal Service offered to the public prior to January 1, 1994; these may continue to be produced or abolished by the Postal Service directly (but not established or changed). For those nonpostal products which the Postal Service offered to the public between January 1, 1994, and the date of enactment, the Postal Service would transition those products into the private corporation established in section 204, following a schedule and procedures established by the PRC. However, if the Board does not transition the products by the first year of the ratemaking cycle under section 3733, the Postal Service must stop offering these particular nonpostal products. If the Service is unlawfully offering a nonpostal product, the PRC may order that the Postal Service cease providing the product.

SUBTITLE B—RELATED PROVISIONS

Section 211 Authority for Postal Regulatory Commission to Issue Subpoenas

Section 3604 of title 39 is amended by adding that Commissioners of the PRC, any law judge appointed by the PRC, and any designated employee of the PRC may administer oaths, examine witnesses, take depositions and receive evidence. In addition, the Chairman of the PRC, any Commissioner designated by the Chairman, and any PRC appointed law judge may issue subpoenas to require attendance and presentation of testimony and production of documents and to order depositions and responses to written interrogatories solely related to any proceeding conducted by the PRC under this title. Any subpoena requires the written concurrence of a majority of the Commissioners then holding office in advance of its issuance. Failure to obey a subpoena may be referred to the United States district court and failure to obey the court is punishable as a contempt of court.

These amendments provide for the handling and consideration of Postal Service proprietary information requested by the PRC by providing that if the Postal Service determines the requested information to be proprietary it must notify the PRC in writing. In such a case, the PRC may only use the information for the purpose supplied and restrict access to the information to only Commission officials. However, the amendment provides for procedures to permit the information to be furnished under the process of discovery in proceedings under sections 556 and 557 of title 5 within rules related to protective orders and providing information under seal currently in place under Federal Rules of Civil Procedure.

Section 212 Qualification Requirements for Commissioners and Directors

In recognition of the enhanced powers and responsibilities vested in the PRC and the Directors of the Postal Service, the amendment provides for specific qualifications for Presidential appointments to these positions. The Commission becomes a true regulatory body, consistent with the authorities of a Federal Communications Commission or a state public utility commission. At the same time, the Directors are given enhanced authorities compared to current law to undertake actions in such areas as ratesetting, classification, experimental products testing, creation of a private corporation for nonpostal products, and borrowing, banking, and investing flexibility. Indeed, a majority of current and former Board members believe that Congress needs to address the lack of well-defined qualification requirements for Board appointments, according to an August 1997, General Accounting Office report on issues related to governance of the Postal Service. The qualification provisions are modeled on the new appointment criteria for the Amtrak Board of Directors. Those Directors and Commissioners currently serving or nominated before enactment are not effected by this change.

212(a) states that the Commissioners will be chosen solely on the basis of their technical qualifications, professional standing, and demonstrated expertise in economics, accounting, law, or public administration.

212(b) states that the Directors shall represent the public interest generally (as provided in current law), and shall be chosen solely on the basis of their demonstrated ability in managing organizations or corporations, in either the public or the private sector, similar in size or scope to the Postal Service. Borrowing from the Amtrak provisions, the amendment explains that the President should consult with the Speaker and minority leader of the House, and the majority and minority leaders of the Senate, in selecting individuals to nominate to the Board.

212(b) adds a provision that requires one of the nine Directors to be chosen from among persons unanimously nominated by all labor unions recognized by law as collective-bargaining representatives for employees of the Postal Service in one or more bargaining units. The term of office for this particular Director would be 3 years instead of the 9-year terms applicable to all other Directors.

Section 213 APPROPRIATIONS FOR THE COMMISSION

As recommended by the PRC, the amendment addresses more clearly the financial independence of the Commission, particularly in light of its greater responsibilities. The amendment concurs with the PRC view that its funding should continue to be provided out of the Postal Service Fund. As the PRC noted, its ability to complete the tasks assigned by this bill in a timely and thorough fashion could be frustrated should a dispute arise between the Board and the Commission over the appropriate level of funding for the PRC. An appropriation by Congress out of the Postal Service Fund to finance the operations of the PRC would assure that it would continue to fulfill its obligations, while also providing Congress the opportunity to reevaluate the appropriate scope of PRC activities.

Therefore, consistent with the similar change provided for the Postal Service Office of Inspector General in Title VII below, an appropriation is authorized for the PRC to be appropriated out of the Postal Service Fund. The approach is modeled on the legislative change enacted for the Federal Deposit Insurance Corporation’s (FDIC) Office of Inspector General (IG) that ensured the budget process adequately protected the IG’s independence. Prior to 1998, the FDIC Board of Directors approved the IG budget, but now the Congress appropriates this IG’s budget out of the various bank insurance funds that are managed by the FDIC.

Section 214 CHANGE-OF-ADDRESS ORDER INVOLVING A COMMERCIAL MAIL RECEIVING AGENCY

This amendment authorizes the Postal Service to forward, in the same manner as all other postal customers, the mail of addressees who have entered into agreements with Commercial Mail Receiving Agencies (CMRAs) to accept mail on behalf of the addressee, such as private post office box rental companies, universities, and hospitals. Presently, CMRAs must add postage to an item that requires forwarding and resubmit it to the Postal Service for further processing.

Section 215 RATES FOR MAIL UNDER FORMER SECTION 4358

This section would authorize the Postal Service to request from the PRC a rate category for second-class (periodicals) requester publications. Presently, nonprofit periodicals must have a list of subscribers, while regular periodical publications may supplement their list with a list of individuals who have "requested" the publication.

TITLE III—GENERAL AUTHORITY

Section 301 RULEMAKING AUTHORITY

The amendment clarifies that the rulemaking function of the Postal Service is limited to rules in aid of its functions under title 39. This change is required in order to avoid an interpretation that the Postal Service may adopt regulations implementing other parts of the U.S. code, e.g., the criminal laws. This revision is consistent with the legislative history of section 401 of title 39, and it is modeled on the Federal Communications Commission’s rulemaking authority, 47 USC 154(i).

Section 302 GENERAL DUTIES

Given that single piece international mail (first-class letters, first-class cards, and parcels) is part of the Noncompetitive category of mail, the amendment clearly applies the non-discrimination provisions of current law to international mail as well as domestic mail. The amendment strengthens the non-discrimination provisions for noncompetitive products (and as described in Title II, for the first time provides for PRC review and remedy of alleged violations through the complaint process). It also declares that for competitive products, the Postal Service may provide discriminatory discounts (i.e., without obligation for equal access by similar mailers) because the Postal Service should have the same freedom with competitive products to use pricing strategies widely used by its competitors in the marketplace. In no case, however, can the Postal Service violate the cost coverage requirements outlined in Title II for competitive products individually and collectively.

Section 303 EMPLOYMENT OF POSTAL POLICE OFFICERS

This amendment permanently authorizes the employment of Postal police officers, an oversight in the Postal Reorganization Act of 1970, which has required the Congress to enact temporary authority each fiscal year via the appropriations process. The permanent authorization of these employees would avoid the need for annual authorizations for the postal police. The Postal Service currently employs more than one thousand Postal Police Officers to serve as guards and security personnel throughout its facilities.

Section 304 DATE OF POSTMARK TO BE TREATED AS DATE OF APPEAL IN CONNECTION WITH THE CLOSING OR CONSOLIDATION OF POST OFFICES

Present law allows the appeal of a post office closing by any person served by such post office if the appeal is received by the PRC within 30 days of notification. This amendment changes the timing of when an appeal of a post office closing is considered timely by insuring it will be considered if it is postmarked, or otherwise date stamped upon receipt for delivery, within 30 days of notification. The Commission testified to the Subcommittee that requiring the appeal be received within 30 days was precluding adequate consideration of certain post office closings.

Sec. 305 UNFAIR COMPETITION PROHIBITED

In addition to maintaining current law on non-discrimination as described in section 302, the amendment extends existing law to prohibit the use of Postal Service monopoly, regulatory, or other authority to lessen competition. The amendment is intended to prohibit the Postal Service from favoring or advantaging postal or non-postal products or services it may offer, or such products or services offered by any other entity (including any entity funded in whole or in part by the Postal Service such as the USPS Corporation). The amendment adds a new section 404a to title 39 and prohibits the Postal Service from (1) competing in areas that it regulates with respect to competition (i.e., gives itself a monopoly or establishes the terms of competition); (2) intentionally giving itself or any other company a competitive advantage through regulations or an unlawful competitive advantage in any other action; (3) taking it upon itself to enforce the antitrust laws by assuming the role of the Department of Justice or the Federal Trade Commission; (4) using information it obtains from a person to that person’s disadvantage by disclosing it, or using it to offer a product or services based on it, without consent or by not independently obtaining it; and (5) compelling the disclosure, transfer, or licensing of intellectual property. The PRC is required to prescribe regulations to carry out the purposes of this new section, and the prohibitions are enforced through the PRC’s strengthened complaint process and remedies, which include ordering rescission of any regulation.

Section 306 INTERNATIONAL POSTAL ARRANGEMENTS

The amendment proposes to address a basic flaw in the 1970 Act: the fact that the Postal Service represents the United States at inter-governmental organizations and thus is in a position to shape international law to suit its commercial ends. The amendment establishes a policy framework for future international postal agreements by separating regulatory and operational functions; such an approach reflects the policy statement to the Preamble to the Universal Postal Union Constitution, and the American tradition of due process and equal application of laws. The Secretary of State is vested with authority to lead U.S. delegations to such meetings, as is required by law for international telecommunications agreements. This authority includes coordinating with other federal agencies on U.S. policy matters, consulting with the Postal Service and other private carriers on operational issues, and establishing advisory groups as the Secretary has done in the telecommunications field. The Secretary is barred, however, from concluding agreements that give preference to any entity, either public or private, including the Postal Service in its provision of competitive products.

The amendment further authorizes the Postal Service to enter into agreements or contracts as it deems appropriate for international postal services without the consent of the President (which is required under present law), as long as any agreements with agencies or subsidiaries of foreign governments are contractual in nature and do not purport to be international law. The Service must notify the Secretary and the PRC of any agreements with agencies or subsidiaries of foreign governments.

In light of the findings contained in studies conducted by the General Accounting Office and the U.S. Customs Service during the last two years, the amendment also mandates a U.S. policy of non-discriminatory access to simplified customs procedures for both the Postal Service’s competitive international mail products and U.S.-owned private carriers. Recognizing that some foreign governments currently reserve access to simplified customs procedures only to government post offices, the amendment also provides 5 years for the Secretary of State (with assistance from the Trade Representative and Customs Service) to negotiate with other countries with the objective that they honor the U.S. policy requiring U.S. carriers – public and private – to respect the principle of non-discriminatory access.

To the extent that at the end of the 5 years certain foreign governments still do not make all customs options available to all similar shipments, then at that time, the Postal Service’s competitive products would be prohibited from using foreign customs procedures that are made available to the Service only and not to private carriers. Likewise, a foreign country’s inbound shipments would be prohibited from using the U.S. simplified customs procedures if the country offers these procedures and does not make them equally available to the Postal Service and private U.S. carriers. However, if a foreign government is already willing to permit the importation of a substantial quantity of U.S. shipments in accordance with the simplified customs procedures, there is little reason to believe that the foreign government will insist upon reserving access to simplified customs procedures in defiance of the U.S. non-discrimination policy.

The amendment ensures that the Postal Service’s existing authority to set international mail rates is maintained until the effective date of baseline rates and fees described in Title II. In addition, the amendment adds postal and other delivery services to the list of services coming under the trade-in-services program of the Department of Commerce, which makes the international policymaking framework for postal services consistent with other service sectors.

Section 307 SUITS BY AND AGAINST THE POSTAL SERVICE

The amendment would subject the U.S. Postal Service to the antitrust and other laws to various degrees. First, the amendment subjects all Postal Service activities to federal laws prohibiting the conduct of business in a fraudulent manner (the Lanham Act). Second, the amendment subjects all Postal Service activities outside the postal monopoly to federal antitrust laws and unfair competition prohibitions, as well as to not being immune under any doctrine of sovereign immunity from suit in Federal court for violating the law, or being held liable under the Federal Tort Claims Act in the same manner as a private company. Thus, for competitive as well as noncompetitive products unprotected by the statutory monopoly, the amendment would prohibit the Postal Service from avoiding the consequences of any unlawful actions occurring after enactment against direct or incipient competition.

Third, the amendment would subject the Postal Service’s motor vehicles "that are primarily and regularly used for the transport or delivery" of competitive products to the same Federal and State laws and regulations regarding parking and operation as faced by private companies, and the Postal Service would need to specifically mark these vehicles as such. This provision would not take effect until the first day of the first year of the first ratemaking cycle.

Fourth, the amendment would apply to the Postal Service local zoning, planning, or land use regulations and building codes that are applicable to State or local public entities, thereby formalizing what has been voluntary compliance. According to former Postmaster General Runyon, the Postal Service has been able to comply with zoning, building code, and permit requirements to the satisfaction of local governments; however, Congress has received many complaints from local governments regarding the Postal Service’s current exemption.

The amendment requires the Postal Service to defend itself in most actions permitted by the above amendments involving application of other laws to the Service’s provision of competitive and non-monopoly products, in addition to cases involving administrative subpoenas issued by the PRC, and appeals of decisions by the PRC or the Directors (a right recognized by the DC Circuit in Mackie v Bush (1993)). The amendment requires that judgments arising out of violations of law involving competitive products must be paid from revenues from competitive products.

TITLE IV—MISCELLANEOUS PROVISIONS RELATING TO THE BUDGET AND APPROPRIATIONS PROCESS

Section 401 PROVISIONS RELATING TO BENEFITS UNDER CHAPTER 81 OF TITLE 5, UNITED STATES CODE, FOR OFFICERS AND EMPLOYEES OF THE FORMER POST OFFICE DEPARTMENT

This amendment addresses the administrative status of the employees affected by the change made by Public Law-105-33 (repealing the authority for transitional appropriations) by clarifying their status as officers and employees of the U.S. Postal Service.

Section 402 TECHNICAL AND CONFORMING AMENDMENTS

This section simply consists of technical corrections to recognize certain outdated aspects of the law such as references to the Committee on Post Office and Civil Service.

TITLE V—PROVISIONS RELATING TO THE TRANSPORTATION, CARRIAGE, OR DELIVERY OF MAIL

Section 501 OBSOLETE PROVISIONS

This amendment repeals the outdated language contained in Chapter 52 of title 39, relating to the Interstate Commerce Commission and other matters and allows for contracting for surface transportation of mail in other sections of the title. The amendment also removes the time limitations restricting the length and duration of postal transportation contracts; these four year limitations date from President Grant’s Administration and reflect the spoils’ system of that era to allow for a new President to assume control of the Post Office Department and its accompanying patronage. In response to testimony on this matter from the National Star Route Mail Contractors’ Association concerning the impact of removing the four year limitation on the costs of the Postal Service and its contractors, the amendment maintains the four year limitation on postal transportation contracts, with the flexibility provided to the Postal Service to modify the limitation as it deems appropriate or advisable.

Section 502 EXPANDED CONTRACTING AUTHORITY

This provision is intended to expand the flexibility of the Postal Service to contract for international air transportation of mail at competitive market rates. Although interstate air transportation of mail (outside of Alaska) has been deregulated, international air transportation of mail remains subject to regulation by the Department of Transportation, and U.S. flag certificated carriers are generally entitled to preference in its carriage. This situation stifles the competitiveness of the Postal Service in international markets, costing it an estimated $40 million to $50 million annually in air transportation costs, according to Postal Service data. Allowing the Postal Service freedom to contract in the international arena, as it already does in the domestic sphere, would enable it to establish timely service requirements for which the marketplace would establish rates. Accordingly, this amendment would contribute to improvements in both cost and service performance, helping the Postal Service fulfill its obligation of ensuring universal postal services at reasonable rates for all Americans. The Department of Transportation supports this provision.

Section 503 PRIVATE CARRIAGE OF LETTERS

This amendment provides that a letter may be carried outside the Postal Service under the following conditions: (1) when provisions of existing law are met, (2) when the amount paid is at least 6 times the rate then currently charged for the 1^st ounce of a single-piece first-class letter, (3) when the letter weighs at least 12 and a half ounces, or (4) if such carriage is within the scope of services described by the Service’s regulations that purport to permit private carriage by suspension of the operation of current law.

This current language is directly responsive to the comments of the Postal Service and its employee organizations who were concerned about a $2.00 threshold, frozen in time. The provisions in the amendment are less restrictive in that they allow for increases in the threshold as the price of a first-class stamp rises.

The idea of a threshold derived as a multiple of 6 times the first-class stamp is significantly less restrictive than postal monopoly limits in other industrialized nations that have reevaluated their postal monopolies and concluded that smaller monopolies will promote greater efficiency without jeopardizing universal service. For example:

• In December 1997, the European Union adopted a directive that limits the postal monopolies in all EU countries – including countries with strong public service traditions like France or relatively inefficient post offices like Italy – to only 5 times the stamp price. In addition, a weight limit of 350 grams (12.5 ounces) was also imposed on all EU postal monopolies (i.e., private carriage is allowed for items weighing more than 350 grams even if private carriage is priced less than 6 times the stamp price). The amendment also adopts this latter approach. While for practical purposes any letter of 12.5 ounces will be outside the monopoly under the indexation scheme, the additional requirement protects bulk first-class mailers.

• Canada’s postal monopoly is limited to 3 times the stamp price for a 2-ounce letter. Australia’s monopoly is limited to 4 times the stamp price or 8 ounces. The postal monopoly in the United Kingdom has a price limit of 1 UK pound sterling (4 times the stamp price).

• Germany, Sweden, and Finland have adopted legislation to abolish their postal monopolies entirely (Germany’s monopoly will be phased out by 2003). New Zealand, Australia, and the Netherlands are also considering abolition of their monopolies.

In comments submitted to the Subcommittee, the Department of Justice stated its support for limiting the scope of the statutory monopoly with a bright-line test for identifying products falling within it. The Department also noted that the Postal Service’s entry into competitive markets suggests that economic theory does not justify the postal monopoly as it exists under current law.

The General Accounting Office has testified that the "impact of reducing the scope of the letter mail monopoly to $2 would not significantly affect the Postal Service’s ability to provide affordable universal service because little of the first-class mail volumes that are currently protected by the postal monopoly would become subject to competition…. Available data indicate that less than 3 percent of the first-class mail revenues are currently derived from first-class mail that falls outside the proposed reduced limit of $2." As noted, the amendment no longer proposes a hardwired limit of $2, but sets it at 6 times the first-class stamp price, which will rise as that rate increases: $1.98 as of January 1999.

As predicted by the Postal Rate Commission testimony, the Postal Service testified that it would interpret current Section 601(b) of Title 39 to allow it to repeal the changes proposed by the amendment. Subsection (b) is derived from section 7 of an 1864 postal act, and the revision repeals it as obsolete – this suspension power has never been used as provided; in fact, no occasion is known of the Post Office or the Postal Service suspending the exception for postage paid mail. Current subsection (b) of 601 simply authorizes the Postal Service to suspend the exception of paragraph (a) and thereby forbid the private carriage of letters even if postage is paid. The Postal Service’s authority to reapply the postal monopoly to stamped letters is unnecessary and antiquated; it is repealed by the bill.

Some entities in both the government and the private sector have testified that since 1974, the Postal Service has often misused the suspension power of 601(b). Since 1974, the Postal Service has, under color of subsection (b), issued regulations that rather than suspend the exception to the monopoly for stamped letters set out in subsection (a), instead suspend the postal monopoly itself (i.e., the criminal prohibitions set out in chapter 83 of title 18, U.S. Code). Indeed, when the Postal Service first proposed these regulations in 1973 that purported to derive a suspension power for the private express statutes contained in Title 18 of the U.S. Code, the Postal Rate Commission concluded that use of the suspension authority in this way violated the legislative language and intent. The grandfather clause provided in the amendment will authorize the continuation of private activities that the Postal Service has permitted under color of this section. In this way, the amendment protects mailers and private carriers who have relied upon regulations that the Postal Service issued in seemingly deliberate misadministration of the current subsection (b).

By establishing boundaries for the postal monopoly while providing the Postal Service more commercial freedom, the amendment clarifies the scope of the statutory monopoly that historically has been defined solely by the Service. The entire section does not take effect until the first day of the first year beginning on or after the date as of which the baseline rates are determined under 3721.

Section 504 REPEAL OF SECTION 5403

This section would repeal section 5403, which provides the ability of the Postal Service to unilaterally impose fines on carriers of international mail for delay of the mail or "other delinquencies." Given the expanded flexibility of the Postal Service to contract in the international arena as provided in section 502, it is inappropriate in a contracted environment for the Postal Service to enjoy a statutory ability to unilaterally impose fines; such matters are best left to negotiations on an air transportation contract.

TITLE VI—STUDIES

Section 601 EMPLOYEE-MANAGEMENT RELATIONS

The amendment requires that an independent study be undertaken by the National Academy of Public Administration under a one-year contract with the Postal Service to study how employee-management relations may be improved. The Academy is mandated to involve the unions and management associations in the development of the contract’s objectives and requirements, and it is directed to interview the Postal Service and its unions and management associations as part of the evaluation, including seeking their comments on a draft of the final report.

It is anticipated that the Academy – as an independent and objective entity – will evaluate and recommend solutions to the myriad of employee-management difficulties the Postal Service has faced in recent years, and to build upon the foundation laid by the Postal Service and its employee’s unions and associations in their joint efforts to address the recommendations contained in the reports of the General Accounting Office on Postal Service labor-management relations, most notably U.S. POSTAL SERVICE: Labor-Management Problems Persist on the Workroom Floor (GAO/GGD-94-201A and 201B (Vols. 1 & 2), Sept. 29, 1994). In testimony to the Subcommittee as recently as June 1998, the GAO reported that these problems continue. Although attempts to address employee concerns and improve teamwork are underway, difficulties persist, and not all parties have made commitments to new initiatives.

Section 602 RECOMMENDATIONS ON UNIVERSAL POSTAL SERVICE

As a logical extension of the Government Performance and Results Act requirements, the amendment directs the Postal Service to conduct a study to develop recommendations on defining and quantifying the concept of "universal service" in the postal sector. This proceeding would be akin to the FCC proceeding required under the 1996 Telecommunications Act that defined universal service in the telecommunications field, except that unlike the FCC review, which created legal obligations, this is simply a study. The concept and scope of the Postal Service’s universal service obligation has never been defined in the United States, thereby permitting great uncertainty over the actual revenue needs of the Postal Service to meet its obligation depending on how broadly or narrowly universal service is defined.

Building upon the universal service provision of the Telecommunications Act, the revision commits the U.S. to ensuring a sufficient level of universal service to bind the Nation together; (i.e., to meet the general universal service objective set out in sections 101 and 403 of current law). The Postal Service would be required to initiate an 18 month study, involving all stakeholders, to identify classes of postal services which it would recommend to be defined as "universal services" in order to fulfill the universal service commitment. These "universal service definitions" will include minimum standards of service to be met. In deciding whether to recommend a class of services as "universal service," the Service is directed to consider new technologies and the evolution of alternative means of meeting the public interest objectives of the postal code.

The amendment requires the Service to incorporate services standards in each recommended definition of universal service, based upon certain specified criteria. These include the need to meet the needs of users and consumers (i.e., addressees), the need to keep rates of universal service affordable, the need to maintain access to universal services in rural and high cost areas, the prohibition against discriminating against mail users and providers, the need to maintain continuity of service, the need to refrain from distortions in competitive markets (both at the supplier and user levels) as much as possible, the special needs of Alaska, and such additional principles as the Service may deem required by the public interest.

Section 603 STUDY ON EQUAL APPLICATION OF LAWS TO COMPETITIVE PRODUCTS

The amendment mandates that the Department of Justice prepare a study detailing how federal and state laws apply differently to the Postal Service’s competitive products and similar products provided by private companies. The report would be required within one year after enactment and it would include recommendations as the Department deems appropriate for resolving any identified disparate treatment.

Section 604 GREATER DIVERSITY IN POSTAL SERVICE EXECUTIVE AND ADMINISTRATIVE SCHEDULE MANAGEMENT POSITIONS

The amendment mandates that the Postal Board study and report to the President and Congress on the extent of representation by women and minorities in supervisory and management positions within the Service. In addition, the Postal Service is required to, as part of its performance evaluations of supervisory and management employees, appropriately consider the meeting of affirmative action goals, achieving equal employment opportunity requirements, and implementing plans to achieve greater workforce diversity.

Section 605 PLAN FOR ASSISTING DISPLACED WORKERS

The section requires the Postal Service to develop and be prepared to implement a plan for offering reemployment assistance to employees displaced by automation or privatization. The plan is to be provided to the Postal Board and Congress within one year of enactment.

Section 606 CONTRACTS WITH WOMEN, MINORITIES, AND SMALL BUSINESS

The amendment requires the Board, within one year, to study and report to the President and Congress the number and value of contracts and subcontracts entered into with women, minorities, and small business.

TITLE VII—INSPECTORS GENERAL

Section 701 INSPECTOR GENERAL OF THE POSTAL REGULATORY COMMISSION

The amendment provides for a designated federal entity Inspector General for the PRC in recognition of the Commission’s increased responsibilities and authority.

Section 702 INSPECTOR GENERAL OF THE UNITED STATES POSTAL SERVICE TO BE APPOINTED BY THE PRESIDENT

Recognizing the size and scope of the Postal Service, the amendment requires the appointment of the Postal Service’s Inspector General by the President, although the current Inspector General would be grandfathered in for the remainder of her term. In the same manner as the 27 other presidentially appointed Inspectors General at major federal departments and agencies, the Postal Inspector General will be appointed by the President with Senate confirmation, and will be under the general supervision of the Postmaster General. Since 1978, the Inspector General Act states that the President will appoint Inspectors General "without regard to political affiliation and solely on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations." The 20-year history of presidentially-appointed and Senate confirmed Inspectors General demonstrates that partisan politics are absent from the operations of the offices of these dedicated public servants.

In addition, the amendment authorizes the Inspector General to audit or oversee the audit of the Postal Service financial statements in order to bring the Postal Service in line with the IG Act and accountability standards expected of other federal agencies, as well as recognize the annual audit reports required under chapter 37. In order to institute independence and objectivity in the audit process, the Inspector General, which is not part of postal management, should control certifying the Service’s financial statements or the selection and overseeing of independent public accountants, as necessary.

Also, the amendment requires that investigative activities of the Postal Service be reported by the Inspector General in the semiannual report to Congress under the Inspector General Act. The current requirement calls for a report to the Congress and the Board on the investigative activities remaining under the management responsibility of the Postmaster General, which would be the Postal Inspection Service’s investigations. For operational efficiency, to avoid duplication of effort, and to ensure independence and objectivity, this amendment would ensure that investigative activity is reported through the Inspector General. Such a change would be consistent with the Inspector General’s oversight authority over the Inspection Service.

TITLE VIII—LAW ENFORCEMENT

SUBTITLE A--AMENDMENTS TO TITLE 39, UNITED STATES CODE

Section 801 MAKE FEDERAL ASSAULT STATUTES APPLICABLE TO POSTAL CONTRACT EMPLOYEES

This amendment specifically includes those employees of the Postal Service who are entrusted with mail under contract with the Postal Service within the protections of law afforded federal and postal employees against the threat of assault.

Section 802 SEXUALLY ORIENTED ADVERTISING

This amendment offers broader deterrence to the continued receipt of unsolicited sexually oriented advertising by authorizing a civil monetary penalty of $500 to $1,500 for each sexually oriented advertising mail piece found to violate 39 U.S.C. 3010. By broadening this deterrent, the Subcommittee proposes to repeal the slower, more cumbersome, pandering statute at 39 U.S.C. 3008.

Section 803 ALLOW POSTAL SERVICE TO RETAIN ASSET FORFEITURE RECOVERIES

This amendment reflects the changes that have taken place in this area since the enactment of the Postal Reorganization Act of 1970. Asset forfeiture recoveries of the U.S. Postal Service must currently be deposited within the U.S. Treasury and then returned to the U.S. Postal Service under an agreement between the two agencies. This amendment allows the deposit of asset forfeiture recoveries in which the Postal Service had primary responsibility for the investigation to be deposited directly in the Postal Service Fund and is consistent with amendments elsewhere in the bill regarding the treatment of Postal Service finances.

Section 804 HAZARDOUS MATTER

Recognizing the inherent danger in the improper mailing or packaging of hazardous matter to employees who must process it and to addressees, this amendment would authorize the Postal Service to bring civil actions for penalties against mailers who violate postal statutes and regulations regarding the mailing and packaging of such mail matter. It would authorize civil penalties not to exceed $25,000 per violation. Although civil penalties under the Hazardous Materials Transportation Act were included for all other means of improper transportation of hazardous materials, the mailing of such items were not included.

SUBTITLE B-OTHER PROVISIONS

Section 811 STALKING FEDERAL OFFICERS AND EMPLOYEES

This amendment creates criminal penalties for stalking of federal and postal employees in the form of fines and imprisonment and is designed to prevent and punish the stalking of federal and postal employees. The Subcommittee believes that these employees, who work with the public enforcing and carrying out the laws we have enacted, deserve the protection of law to be secure in their persons while carrying out their responsibilities as federal and postal employees.

Section 812 NONMAILABILITY OF CONTROLLED SUBSTANCES

This amendment updates existing law to prohibit the mailing of controlled substances, as defined by the Controlled Substances Act, and making such a violation a felony punishable by fines and imprisonment or both.

Section 813 ENHANCED PENALTIES

This amendment directs the U.S. Sentencing Commission to appropriately enhance its sentencing guidelines for volume mail thefts and the use of the credit line of credit cards to compute the dollar loss in the unauthorized use of a credit card.

Section 814 POSTAL BURGLARY PROVISIONS

The amendment clarifies the Postal burglary statute to specifically include the robbery of the large number of post office boxes and vending machines that are not in postal facilities. It also includes penalties for the receipt or possession of stolen property through a violation of this statute.

Section 815 MAIL, MONEY, OR OTHER PROPERTY OF THE UNITED STATES