UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


UNITED PARCEL SVC

v.

USPS


98-1310a

D.C. Cir. 1999


*	*	*


Opinion for the Court filed Per Curiam.


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


I. Background


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


The Commission is then required to


make a recommended decision on the request for  changes in rates or
fees in each class of mail or type of  service in accordance with the
policies of this title and  the following factors:


(1) the establishment and maintenance of a fair and  equitable
schedule; (2) the value of the mail service actually provided each 
class or type of mail service to both the sender and the  recipient,
including but not limited to the collection,  mode of transportation,
and priority of delivery;  (3) the requirement that each class of mail
or type of  mail service bear the direct and indirect postal costs 
attributable to that class or type plus that portion of all  other
costs of the Postal Service reasonably assignable  to such class or
type; (4) the effect of rate increases upon the general public, 
business mail users, and enterprises in the private  sector of the
economy engaged in the delivery of mail  matter other than letters;


(5) the available alternative means of sending and  receiving letters
and other mail matter at reasonable  costs;


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


(7) simplicity of structure for the entire schedule and  simple,
identifiable relationships between the rates or  fees charged the
various classes of mail for postal  services;


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


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


Id. s 3622(b).


The Commission has construed section 3622(b) to establish  a "two-tier
approach to allocating the Postal Service's total  revenue
requirement" under which the Commission "first 


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


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


II. DISCUSSION


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


A. The Overall Rate Increase


1.


During the three years (1995-1997) since its last rate  increase in
Docket No. R94-1, the Postal Service has experi- enced revenue
surpluses after decades of deficits. The Ser- vice feared, however,
that its net income would be insufficient 




__________

n 1 For a more detailed exegesis of the statutory scheme, see Mail 
Order Ass'n of Am. v. USPS, 2 F.3d 408, 413-16 (D.C. Cir. 1993).


to cover planned increases in capital spending on several 
management-initiated projects designed to improve the Postal 
Service's performance and infrastructure. The Service ini- tially
estimated that its total revenue requirement for Fiscal  Year 1998
would be $61.6 billion, including $60.564 billion in  incurred costs,
$605.6 million for a one-percent contingency  fund, and $446.9 million
to recover one-ninth of the Service's  $4.022 billion in accumulated
debt. On this basis, it projected  that it would need over $2.4
billion in additional revenue.  The Service filed its request with the
Commission in July  1997, based on data from FY 1996, using 1998 as a
"test  year"--a year that is to be "representative of the period for 
which the proposed rates are to be in effect." PRC Op.  R97-1 at 12;
see also 39 C.F.R. s 3001.54(f)(2) (1998).


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




__________

n 2 The Commission later identified this figure as $1.2 billion, 
without explaining the discrepancy.


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


The Commission therefore rejected the Service's effort to  increase its
original estimate by $362 million. As to the  initial spending program
estimates, however, the Commission  observed that, despite having
"serious doubts about the Post- al Service's forecasts in the area of
other programs expense,  ... [the Commission] does not scrutinize the
wisdom of  Postal Service spending plans." Lacking sufficient grounds 
to reduce this initial estimate of other programs expenses, the 
Commission reasoned that, "[w]hile a proportional amount of  spending
has not occurred in the first half of the test year, no  party has
presented evidence suggesting that the Postal  Service will not spend
funds for any particular program  during the remainder of 1998." It
rejected, however, the 


Postal Service's position that "it does not matter when the  money is
spent because it will eventually be spent," on the  ground that it was
"antithetical to the test year ratemaking  process."


In revising the revenue request, the Commission observed  that it could
"not estimate the degree to which the error in  forecasting 1997
results will continue into the test year,  primarily because it lacks
the Cost and Revenue Analysis for  1997 (CRA)," after the Governors
declined to delay the  proceedings to allow time for final FY 1997
data to be  compiled. It did, however, adjust the Postal Service's
origi- nal request based on the 1997 figures it had, with reductions 
for corrections provided by the Postal Service ($67 million), a 
cost-of-living adjustment ($511.1 million, the largest single 
change), and corrections for cost reduction and other pro- grams
estimates ($101 million).3 It retained the 1% contin- gency figure
and, in keeping with the Postal Service's nine- year amortization
plan, it reduced by $69.9 million the amount  the Service could
ascribe to prior year losses, or "one ninth of  the difference between
actual and estimated 1997 profits."  The Commission noted that "[t]he
nine year amortization  period is standard, having been used in Docket
Nos. R80-1,  R84-1, R87-1, R90-1, and R94-1," and that "[t]he Service 
still believes it is appropriate." These figures, combined with 
attribution and miscellaneous adjustments adding $4 million  to the
total revenue requirement, led the Commission to  reduce the proposed


At the same time, in light of the break-even requirement,  39 U.S.C. s
3621, the Commission urged the Governors to  delay implementing the
new rates "until additional revenues  are needed to offset actual (as
opposed to planned) expendi- tures." In sum, despite the recent
surpluses, the Commission 




__________

n 3 The Governors criticized this last decrease of "assumed supervi-
sor cost savings" as "based on one party's unsupported speculations 
that such costs were overlooked." Despite this complaint, the 
Governors elected not to challenge this reduction; nor do the 
petitioners raise it as an issue.


approved an increase of $1.6 billion in overall rates on the  ground
that these changes "will provide added funds to  enable the Postal
Service to proceed with its plans to spend  $5.6 billion on equipment
and service enhancement programs  in the 1998 fiscal year."4


A month later, the Governors adopted most of the Commis- sion's
recommendations. See 39 U.S.C. s 3625. In their  view, "[t]he revenue
requirement was driven in large part by  the need to fund specific
management initiatives and pro- grams, many of which have been
approved by the Board of  Governors to maintain and improve service
for the public, as  well as by the usual need to cover expenses and
repay prior  years' losses." At the same time, they acknowledged that
in  FY 1998 they expected a gain in net income. Although  criticizing
the Commission's rejection of certain costs and the  1.5% contingency
figure, the Governors accepted the revenue  requirement portion of the
Commission's decision. They  added, however, that, under their
Resolution No. 95-9,5 the  Postal Service could recover for prior


at a more rapid rate, if possible, than that based on the  amount
included in the revenue requirement. Continued  surpluses above and
beyond those anticipated will allow  for the complete restoration of
equity in the near future,  obviating the need to include this
provision in subsequent  revenue requirements, and thus relieving the
ratepayers  of a burden they have carried for many years.


Finally, in light of comments by mail customers to the  Governors and
the Commission's request of a delay, the  Governors postponed
implementing the rate changes until  January 10, 1999. Among the
factors influencing the delay  were the Service's current financial
situation, as reflected in  the annual report for FY 1997 and reported
expectations for 




__________

n 4 This spending increase represented the first portion of a five-
year plan to invest $17 billion in the Postal Service's operations.


5 Resolution 95-9, a policy statement by the Governors, provides  that
the "Postal Service will plan for cumulative net income ... to  equal
or exceed the cumulative prior years' loss recovery target."


FY 1998, and the fact that January marked the four-year  anniversary of
the last general rate increase. The Governors  also concluded that
applying the increase in January was  "consistent with the Postal
Service's goal for equity restora- tion through FY 1998, in accordance
with Resolution No. 95-9  and the Commission's recommendation for the
recovery of  prior years' losses."


2.


In 1970, Congress enacted the "break even" requirement,  see 39 U.S.C.
s 3621, as part of the Postal Reorganization  Act, Pub. L. No. 91-375,
s 3621, 84 Stat. 719, 760 (1970)  (codified as amended at 39 U.S.C. s
101, et seq. (1994)),  following years of deficits by the then-Post
Office Depart- ment. See National Ass'n of Greeting Card Publishers v.
 USPS, 607 F.2d 392, 425 (D.C. Cir. 1979) (NAGCP III); see  also H.R.
Rep. No. 91-988 at 3, 6, 13 (1970). The House  Committee on Post
Office and Civil Service explained that  "the 'break-even' requirement
of H.R. 17070 represents a  commitment that the Postal Service no
longer rely on massive  annual infusions of general revenues of the
Treasury at the  taxpayers' expense." H.R. Rep. No. 91-1104 at 17
(1970);  see also H.R. Rep. No. 91-988 at 13. Even so, that version of
 the bill did not contemplate the Postal Service becoming 
"self-sustaining--[i.e.] eliminating the postal deficit"--until 
January, 1978. H.R. Rep. No. 91-1104 at 10. The final  version of the
legislation, however, replaced the 1978 target  date with a
requirement that "revenue from rates and fees,  plus annual
appropriations for public service, debt service,  and revenue foregone
should cover full costs." H.R. Rep. No.  91-1363 at 87 (1970)


Despite the restructuring of the postal system, however,  the Service
continued to operate budget deficits in all but  nine of the 26 years
from 1971, when it became an indepen- dent agency, to 1997. See PRC
Op. R97-1, at i, 11; Postal  Rate Commission, Opinion & Recommended
Decision, Docket  No. R94-1, at II-24 to II-26 (1994) ("PRC Op.
R94-1"); see  also NAGCP III, 607 F.2d at 425, 431. As the Commission 
observed in the 1994 rate case, "[w]hile reorganization led to 


improvements in the cumulative deficit trend, it has not lived  up to
the expectations of break-even operations." PRC Op.  R94-1 at II-34.
This problem began to change in the three  years following the 1994
rate case when the Service experi- enced "unprecedented operating
surpluses totaling $4.6 bil- lion." PRC Op. R97-1 at i.


The Service's improved fortunes, however, lie at the heart  of the
Alliance's challenge to the overall rate increase. The  Alliance
contends that the Governors' decision flies in the face  of evidence
that the Service was operating at a surplus at the  time the Governors
approved the Commission's recommended  rate increase and therefore the
Governors' decision violated  the "break-even" requirement of s 3621.
The Service re- sponds that the Commission (and therefore the
Governors,  who adopted the Commission's recommendation) carefully 
considered its request, reducing the proposed increase when  new data
became available, and that "[n]o party filed factual  evidence
controverting the Postal Service's revenue require- ment


The plain language of s 3621, that total estimated income  and expenses
be "equal as nearly as practicable," suggests  that Congress did not
contemplate the break-even provision  to require a strict
dollar-for-dollar match when the Service  presents its budget proposal
to the Commission. The legisla- tive history also recognizes that
income and costs could be  "approximately in balance" and that the
Commission should  recommend a decision balancing the two "as nearly
as possi- ble." S. Rep. No. 91-912, at 14-15 (1970). The Senate 
Committee on Post Office and Civil Services reported that the 
Governors were to notify the Commission if estimated costs  and
estimated income were "significantly different," at which  time they
were to request a change in the rate structure. Id.  at 14.


The statutory language and the legislative history recog- nize that
ratemaking inherently involves some degree of  imprecision and, as
this court has previously observed, it is  not an exact science. See
Association of Am. Publishers v.  Governors of the USPS, 485 F.2d 768,
773 (D.C. Cir. 1973). 


The Service makes projections about its costs and revenue  that may or
may not come to pass; projections are no more  than educated guesses.
The use of projections for future  costs and revenues necessarily will
involve some imprecision  when actual data becomes available. Of
course, the Service  must make its estimates in good faith. In
addition, the  Commission has a duty to evaluate the Service's
proposal  independently. See Mail Order Ass'n of Am. v. USPS, 2  F.3d
408, 422 (D.C. Cir. 1993). Nevertheless, the Postal  Service's request
for a rate change "shapes the Commission's  power to recommend." Dow
Jones & Co. v. USPS, 110 F.3d  80, 83 (D.C. Cir. 1997).


The Alliance's challenge focuses, therefore, on the Postal  Service's
estimate of its costs, noting that even the Commis- sion expressed
some doubts as to whether the Postal Service  would spend all of the
money in the test year that it initially  projected. The court has
previously rejected efforts to define  the term "cost" under s 3621
too restrictively, lest we "clamp  the shackles of a narrow rule onto
the Postmaster General's  attempt to return the Postal Service to
financial stability."  NAGCP III, 607 F.2d at 428. Although the
Service is not  free to define "total estimated costs" so broadly as
to make  the term meaningless, the court accepts the Service's deter-
mination as to costs "unless it lies outside the range of  permissible
choices contemplated by the statute." Id. at 430  (quoting Hardin v.
Kentucky Utilities Co., 390 U.S. 1, 8  (1968)). As the Supreme Court
observed in New York v.  United States, 331 U.S. 284, 328 (1947),
"[t]he appraisal of  cost figures is itself a task for experts, since
these costs  involve many estimates and assumptions and, unlike a
prob- lem in calculus, cannot be proved right or wrong. They are, 
indeed, only guides to judgment." The Alliance does not  challenge the
type of expenses the Service proposes to count  as costs, but only the


In reviewing the record, the court must determine whether  there was
substantial evidence for the Commission to rely on  the Service's
original cost estimates in calculating the revenue  required for the
Service to break even. See 5 U.S.C.  s 706(2)(E) (1994); Mail Order
Ass'n, 2 F.3d at 420. Such 


evidence need not be "overwhelming," and the agency "must  have
latitude to draw permissible inferences from ... the  record." Mail
Order Ass'n, 2 F.3d at 421. Here, the Com- mission noted, first, that
the need for a revenue increase  arose from the Service's plans to
increase capital spending to  $2.5 billion on ambitious
management-initiated programs to  improve customer service. When data
became available indi- cating that the Service's financial performance
was better  than expected in 1997, the Commission adjusted the
Service's  revenue requirements, while noting that the factors causing
 1997's stellar performance might not continue into the test  year. It
also rejected the Service's claim that its costs would  be even
greater than it had initially projected. Thus, the  Commission did
not, as the Alliance suggests, set rates with- out regard to actual
data. By contrast, in West Ohio Gas v.  Public Utilities Comm'n of
Ohio, 294 U.S. 79 (1935), the  agency "shut [its] eyes" when presented
with actual revenue  figures for 1930 and 1931, instead relying on
estimates based  on 1929 data. Id. at 81. Here, the Commission
adjusted its  figures as new data became available and was not
required to  delay indefinitely the ratemaking process until all 1997
data  had been compiled, particularly in light of its statutory obli-
gation to make its recommendation within 10 months. See 39  U.S.C. s


Second, although expressing doubts about whether the  Service could
actually spend all the money it initially planned  for during the test
year, the Commission found that it had no  basis to reduce this
estimate, observing that its role was not  to pass judgment on the
wisdom of the Service's proposed  spending. See Governors of USPS v.
United States Postal  Rate Comm'n, 654 F.2d 108, 115 (D.C. Cir. 1981).
The  Service offered evidence that it had plans in place to make  sure
its managers timely spent these funds, and it noted that  a number of
contracts had already been signed. The Alliance  does not seek
disallowance of any specific expenditure. Al- though the Alliance
challenges the Service's claim that it  would in fact spend the
millions of dollars during the test  year, reversing early fiscal year
performance, it provided no  evidence that such spending would not


sion could reasonably presume, therefore, that the Service's  initial
estimates and managerial efforts reflected a good faith  forecast of
its spending needs.6 See FTC v. Owens-Corning  Fiberglas Corp., 626
F.2d 966, 975 (D.C. Cir. 1980); cf. West  Ohio Gas v. Public Utilities
Comm'n of Ohio, 294 U.S. 63, 72  (1935).


Because we conclude that the Commission's recommended  decision to
approve a revenue increase was "based on such  relevant evidence as a
reasonable mind might accept as  adequate to support [the] conclusion"
that the Service would  spend its initial estimates on new programs
during the test  year, making the rate increase necessary, see Mail
Order  Ass'n, 2 F.3d at 420 (citations and internal quotation marks 
omitted), we affirm the Governors' decision. The Governors  could
reasonably rely on the Commission's conclusions. Al- though the
Service's failure in the early part of the fiscal year  to keep pace
with its initial spending projections might sug- gest an inability to
meet its spending targets for the remain- der of the test year, this
is not the only conclusion reasonably  to be drawn from the evidence.
Reviewing courts "may not  overturn an agency finding simply because
evidence existed  supporting an alternative finding." Direct Marketing
Ass'n  v. USPS, 778 F.2d 96, 108 (2d Cir. 1985) (quoting Newsweek, 
Inc. v. USPS, 663 F.2d 1186, 1210 (2d Cir. 1981)). The  Service's
witnesses testified, and the Commission accepted,  that a number of
contracts for such spending had been signed  and that the Service was
taking steps to ensure that manag- ers would be accountable for
spending the money in their  budgets on the new programs.7 These




__________

n 6 Although the Alliance makes much of the fact that the Postal 
Service earned a $550 million net income during FY 1998 and $611 
million during the first four months of FY 1999, these figures were 
not available to the Commission and the Governors when they made 
their respective decisions. See 39 U.S.C. s 3628 (1994); see also 
Commercial Drapery Contractors, Inc. v. United States, 133 F.3d 1,  7
(D.C. Cir. 1998); Direct Marketing Ass'n v. USPS, 778 F.2d 96,  109


7 The Alliance is therefore mistaken when it contends that the  Service
is engaging in post hoc rationalization by suggesting that 


tent with the Service's obligation to maintain and develop the  postal
system and to improve its service to customers. See  generally 39
U.S.C. s 3621. The Alliance's requested relief,  complete
"disallowance of the proposed rate increases in their  entirety,"
would seriously interfere with the Governors' deter- mination that
additional funds were needed to improve ser- vice, and hence the
Commission could reasonably reject its  request. We also reject the
notion that the Postal Service  could implement rates only once its
profits were exhausted:  the Service can rely on the test-year
estimates, so long as the  Commission has substantial evidence with
which to support  those calculations. See Mail Order Ass'n, 2 F.3d at


In light of the inherent mismatch that can occur when  using a test
year and estimates to project revenue require- ments, the Commission
necessarily faces the prospect that  some of the data initially
provided to it by the Service may  later prove to be inaccurate. The
Commission considered the  data before it, rejected the Service's
late-breaking spending  increase projections, and reduced the initial
estimates based  on what data it had. Although the Commission
requested a  three-month delay to allow time for the submission of
updates  to its FY 1997 data, once the Governors rejected this
request,  the Commission was within its discretion to proceed based on
 the evidence before it and to decline to reopen the record and 
thereby endanger its statutory obligation to complete the rate 
proceeding within ten months. See 39 U.S.C. s 3624(c)(1);  see also
Direct Marketing Ass'n, 778 F.2d at 107 (citing City  of San Antonio
v. Civil Aeronautics Bd., 374 F.2d 326, 329  (D.C. Cir. 1967)). The
Alliance acknowledges that the record  before the Commission need not
be "continually" updated to  reflect the latest, most accurate data.
Indeed, in enacting the  Postal Reorganization Act, Congress was
concerned that  "protracted disputes over rates and classifications
not block  the adequate flow of revenues to the Postal Service." Mail 
Order Ass'n, 2 F.3d at 419 (citing H.R. Rep. No. 91-1104 at  19).




__________

n the delays in spending at the beginning of the fiscal year were only 
temporary. See SEC v. Chenery Corp., 332 U.S. 194, 196 (1947).


The Alliance contends, however, that whatever evidence  was before the
Commission, the Governors in effect admitted  that a rate increase in
FY 1998 would violate the break-even  provision when they stated in
their decision adopting the  Commission's recommendation a month later
that "[i]n FY  1998, the Board once again expects the Postal Service
to gain  a net income." This statement, divorced from any specific 
data in the record to support it, is somewhat ambiguous, in  that it
indicates nothing about the size of the expected  surplus or whether
it would be more than the $19 million  surplus projected by the
Commission for 1998 if the new  rates were implemented. Furthermore,
the Governors made  this observation in the context of explaining why
they were  delaying implementation of the rates until January 1999. 
Hence, the statement is hardly a precise calculation of the  Service's
revenue requirements based on evidence in the  record.8


B. Nonprofit Standard A Mail


The Alliance also challenges the Postal Service's increased  rate for
"nonprofit Standard A mail,"9 arguing that the Ser-




__________

n 8 The Commission urged the Governors to delay implementing  the rates
until the new revenues were actually needed "to offset  actual (as
opposed to planned) expenditures." The Commission did  not, however,
condition its recommendation of the rates upon the  Board's acceptance
of a delay. Had the Commission required the  Service to delay rates
until January, it would be making rates on  the basis of something
other than the test year, in that it would be  acknowledging that the
Service could not spend all the money it  proposed during the test
year. Although the decision when to start  new rates is within the
Governors' discretion, see Mail Order Ass'n,  2 F.3d at 419-20; see
also 39 U.S.C. s 3625(f), we do not reach the  separate inquiry of
whether the Commission could approve an  increase contingent upon the
Governors' delaying its implementa- tion until actual spending needs


9 The Alliance describes this subclass as "the primary medium for 
nonprofit organizations to raise funds and disseminate information." 
Commercial Standard A mail, in contrast, is "the primary subclass  for
commercial bulk advertising mail."


vice improperly allocated costs. The Postal Service initially  proposed
a rate increase of 11.3% for nonprofit Standard A  mail. Before the
Commission, however, the Alliance's wit- ness, John Haldi, came
forward with evidence that part of the  increase in nonprofit costs
resulted from a "mismatch" be- tween two Postal Service methods for
tracking nonprofit mail.  Specifically, Haldi testified that volume
data collected through  the Revenue-Piece-Weight ("RPW") system might
be out-of- synch with cost data measured through the In Office Cost 
System ("IOCS"), leading to the costs of nonprofit mail being 
overstated. Due to changes in nonprofit mail eligibility re-
quirements, some mail "bearing nonprofit indicia of postage"  were
"entered at commercial rates or later charged back  postage based on
commercial rates." Haldi estimated that  7.85% of mail with nonprofit
markings paid commercial rates  and that therefore 7.85% of total
attributable costs for Stan- dard A nonprofit mail should shift to


The Postal Service's rebuttal study challenged Haldi's find- ings. The
Service conceded that the mismatch documented  by Haldi was possible,
but it found that only 0.061% of  commercial mail had nonprofit
indicia, with a net effect that  only $400,000, or 0.18%, of nonprofit
costs should be assigned  to commercial costs. Given the small figure,
the Postal  Service argued that no adjustment was necessary.


The Commission found that both surveys "are significantly  flawed and
may not be relied upon for quantitative assess- ment." For example,
one third of the responses in the Haldi  study came from one
organization, the American Association  of Museums, while the Postal
Service's study relied extensive- ly upon the memories of its
employees. A problem clearly  existed--"that some nonprofit mail may
be correctly reported  in the RPW system as commercial mail, but
recorded as  nonprofit in the IOCS system." But the Commission
conclud- ed that quantifying this problem presented a "greater chal-
lenge," and in the end determined "[a]fter examination of the  record
evidence, including nonprofit mail volume, the Com- mission estimates
that one percent of total nonprofit attribut- able costs should have
been associated with Standard A  commercial mail." The resulting rate


dard A Nonprofit Mail was an increase of 9.6%, which the  Governors
adopted.


On appeal, the Alliance contends that the rate increase for  Nonprofit
Standard A mail violates the requirements of  s 3626(a)(3), which
provides that rates for this category of  mail include the "estimated
costs attributable" to it plus an  additional markup, which for FY
1998 equaled 5/12 of the  commercial subclass markup.10 See 39 U.S.C. 
s 3626(a)(3)(A)-(B) (1994). The statute defines "costs attrib- utable"
as "the direct and indirect postal costs attributable to  such class
of mail or kind of mailer (excluding any other costs  of the Postal
Service)." Id. s 3626(a)(2)(A). This language  parallels s 3622(b)(3),
which requires "that each class of mail  or type of mail service bear
the direct and indirect postal  costs attributable to that class or
type plus that portion of all  other costs of the Postal Service
reasonably assignable to  such class or type." In the Alliance's view,
because the cost  data used to create the nonprofit rate was
"corrupted," and  the Postal Service had failed to provide sufficient
evidence on  the extent of cost-shifting, the Commission had to reject
the  rate increase or toll the deadline until the Postal Service 
provided better data.11 Selecting the one-percent figure as a 




__________

n 10 In 1993 Congress passed the Revenue Forgone Reform Act, as  part
of the larger Treasury, Postal Service, and General Govern- ment
Appropriations Act, 1994, Pub. L. No. 103-123, 107 Stat. 1226,  ss
701-708 (1993). This statute amended 39 U.S.C. s 3626(a),  phasing in
a series of mark-ups based on year. See 107 Stat. at  1268. For fiscal
years after 1998, the rate for nonprofit Standard A  mail was to
"reflect one-half the markup of the comparable commer- cial subclass."
PRC Op. 97-1, at 458; see also 39 U.S.C.  s 3626(a)(3)(B)(ii)(VI).


11 For support of this proposed delay, the Alliance cites 39 U.S.C.  s
3624(c)(2), which permits the Commission to extend the 10-month 
deadline by one day for each day that the Postal Service has 
unreasonably delayed a response to a lawful order by the Commis- sion.
The Postal Service responds that at no time did it fail to  comply
with a specific Commission order. The Alliance contends,  however,
that the Postal Service's failure "to provide adequate  documentation
of the costs attributed to nonprofit Standard (A) 


compromise number between the competing parties' esti- mates did not
constitute, the Alliance contends, reasoned  decision-making.


In examining the Commission's decision, context is signifi- cant. The
Commission viewed the Service's proposed request  to be "the most
technically complex" rate case ever presented  to it. See PRC Op.
R.97-1 at iii. Yet the statute required  the Commission to make its
recommendations on the Ser- vice's request "no later than 10 months
after receiving" it. 39  U.S.C. s 3624(a), (c)(1). To reach that
point, the Commission  first had to conduct hearings to allow the
Service, mail users,  and a Commission officer appointed to represent
the general  public the opportunity to comment on the Service's
request.  Id. s 3624(a). Congress required that the Commission reach 
its decision promptly in recognition that "the Postal Service is  a
labor-intensive organization," S. Rep. No. 91-912, at 16,  which
needed sufficient income to operate efficiently, see H.  Rep. 1104 at
19, and therefore Congress implicitly anticipated  that the Commission
would have to make its recommenda- tions based on the data that might
suffer from analytical  flaws or, with time, prove inaccurate.


Consequently, although the Commission has an obligation  to explain its
reasoning and to support its position with  substantial evidence, see
Mail Order Ass'n, 2 F.3d at 420;  Direct Marketing Ass'n, 778 F.2d at
100, it will not always be  possible for it to provide an extended
explanation of every  issue addressed in its recommendation,
particularly an issue  raised relatively late in the proceedings. So
viewed, the  Commission's decision is sufficient if the court can




__________

n mail" violated the Service's obligation to provide complete documen-
tation on cost attribution for individual classes of mail. Reply Br. 
at 15 n.7 (citing 39 C.F.R. s 3001.54(b)). Despite the Alliance's 
assertions, the statute provides that the delay may be imposed  when
"the Commission determines that the Postal Service has  unreasonably
delayed consideration." See 39 U.S.C. s 3624(c)(2)  (emphasis added).
Although the Commission was critical of the  Service's failure to
"expend significant efforts to evaluate the mat- ter until after
[being] directed ... to do so," the Commission made  no such
determination on this issue.


path that the Commission followed in reaching its one-percent  figure.
See Motor Vehicle Mfrs. Ass'n of the United States v.  State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983)  (quoting Bowman Transp., Inc.
v. Arkansas-Best Freight  Sys., Inc., 419 U.S. 281, 286 (1974)); see
also Greater Boston  Television Corp. v. FCC, 444 F.2d 841, 852 (D.C.
Cir. 1970).


The Supreme Court has cautioned, moreover, that "[a]lloca- tion of
costs is not a matter for the slide-rule. It involves  judgment on a
myriad of facts. It has no claim to an exact  science." National Ass'n
of Greeting Card Publishers, 462  U.S. at 825 (quoting Colorado
Interstate Co. v. FPC, 324 U.S.  581, 589 (1945)). Discussing postal
rate cost allocation in the  context of s 3622(b)(3), the Court
observed that "Congress  did not dictate a specific method for
identifying causal rela- tionships between costs and classes of mail"
and that the  Commission's interpretation of the statute, including
the  method to choose to comply with s 3622(b)(3), was due defer-
ence. Id. at 826. The Court upheld the Commission's con- struction of
the Postal Reorganization Act as establishing a  "two-tier ratesetting
structure" to allocate costs, first identi- fying "all costs that in
the judgment of the Rate Commission  are the consequence of providing
a particular class of service"  and second "assign[ing] remaining
costs reasonably on the  basis of the other eight factors set forth by
s 3622(b)." Id. at  833-34. The Court concluded that "[t]he statute
requires  attribution of any cost for which the source can be
identified,  but leaves it to the Commissioners, in the first
instance, to  decide which methods provide reasonable assurance that 
costs are the result of providing one class of service." Id. at 


When an agency does not "entirely disregard two experts,  but [finds]
each somewhat in error," the court has permitted  the agency to take
"as its own solution a point somewhere  between the two expert
figures. When neither of two sug- gested adjustments applied to
inaccurate data is completely  satisfactory a rate-making body may
fashion its own adjust- ments within reasonable limits." Association
of Am. Pub- lishers, 485 F.2d at 773. Accord Direct Marketing Ass'n,
778  F.2d at 102, 110-11. In Association of American Publishers, 


the Commission decided to split the difference between two  competing
figures, observing that "[s]ince Solomon's day, to  split the
difference or to come close thereto has been thought  wise, if only
because it makes parties more likely to disclose  to tribunals the
truth." 485 F.2d at 773. Here, the Commis- sion elected a figure at
the low-end of a narrow range,  between the Service's estimate of
0.18% and the Alliance's  estimate of 7.85%.


The dilemma for the Commission was to quantify the  extent of the
mismatch between the two Service methods for  tracking nonprofit mail.
Although the Alliance and the Ser- vice's surveys acknowledged some
mismatch existed, survey- design flaws made its impossible for the
Commission to know  the exact amount of mismatching that had occurred.
As in  Association of American Publishers, "[t]he only available 
figures were inaccurate, but were susceptible of rough adjust- ment,"
id., because the Commission could reasonably assume  that the mismatch
was no worse than the Alliance's estimate  of 7.85%, given its
incentive to find the most favorable sample  possible,12 nor better
than the Service's estimate of 0.18%,  given its interests in
minimizing the problem so that its cost  allocation estimates would
remain undisturbed.13 Viewing the  surveys, though flawed, to
represent the outer limits of the  true nature of the mismatch, with




__________

n 12 The Alliance contended during oral argument that there might  have
been a more biased sample of interested parties out there but  that it
did not "have access to the whole universe of nonprofit  mailers."
Even so, the survey itself attempted to elicit a favorable  response
from those participants that the Alliance was able to  reach.
Specifically, one version of the survey used by the Alliance  alerted
participants that "the ongoing postal rate case litigation  before the
Postal Rate Commission threatens to hit nonprofit  Standard A mailers
with substantial increases ... as high as 15- 18%" and urged them to
respond "[i]n order to best protect your  interests and the interests
of your colleagues." Such language  could potentially discourage at
least some respondents from reply- ing if their own figures would not
aid the nonprofit mailers' cause.


13 Indeed, the Service argued before the Commission that no  adjustment
to nonprofit costs or rates was warranted.


0.18% as the floor, the Commission, given time constraints,  could
reasonably select a figure somewhere between that  range and choose a
number at the low end of the range.  First, the results of the
Alliance's survey were questionable  because the Alliance failed to
show that they reflected the  experiences of non-profit mailers as a
whole, particularly in  light of the fact that so many of the
responses came from one  group.14 Second, the Commission expressed
concern that the  survey relied on a volume growth rate figure that it
had not  attempted to quantify. Third, although the Service's survey 
suffered from flaws as well, in that it failed to consider a  source
of volume (mail voluntarily entered at commercial  rates) that could
not readily be quantified, and it relied in  part on the memory of
Postal employees, the Commission  could still reasonably assume the
mismatch problem was  relatively small in view of the lack of reliable
evidence pre- sented by the Alliance that the mismatch was significant
 enough to warrant a major adjustment. Cf. Mail Order  Ass'n, 2 F.3d
at 438. Had the Commission adopted the  Alliance's figure without
having reliable evidence to back it  up, the Commission would be
creating a solution to a problem  that may be relatively small,
thereby unnecessarily penalizing  commercial subclasses and opening
itself up to accusations of  arbitrary decision-making by subclasses
negatively affected  by its "solution." Although the Commission must
address a  petitioner's allegations of error in the Service's
calculations,  the Commission need not assume that simply because an




__________

n 14 One-third of the Alliance's survey responses came from mem- bers
of a single association, the American Association of Museums,  even
though this group did not represent one-third of all non-profit 
mailers. Two of the fundamental goals of designing a sample is to 
"choos[e] a sample that reflects relevant characteristics of the 
population, and [to] achiev[e] a certain level of precision for the 
statistical results. A major influence on the precision of estimates 
is the size of the sample." David W. Barnes & John M. Conley, 
Statistical Evidence in Litigation 253 (1986). The validity of a 
survey's results is undermined if the sample is not representative of 
the population it purports to represent or is not selected in a 
sufficiently random manner. See Frazier v. Consolidated Rail  Corp.,
851 F.2d 1447, 1452 (D. C. Cir. 1988).


objection is raised that a problem exists, when the petitioner  fails
to provide reliable data to support its position. Here the 
Commission's choice of the one-percent figure avoided penal- izing the
commercial subclasses, in that the small shift in  costs had almost no
effect on their unit attributable cost, yet  it also took into account
the Alliance's concern that nonprofit  mailers were being penalized
with "unjustifiably high rates."


Admittedly, the choice of the one-percent figure (as op- posed to some
other point between 0.18% and 7.85%) is  somewhat mysterious, but the
general path is clear enough.  The record indicated that a mismatch
problem existed, but  that it might not be very large. Although with
more time,  the Commission might have been able to get better informa-
tion, see Association of Am. Publishers, 485 F.2d at 773, a 
"judgmental approach" selecting a figure between these two  estimates,
though favoring the low end of the spectrum, was  within the
Commission's authority.


Direct Marketing Association, 779 F.2d 96, presents an  analogous
situation. The Second Circuit upheld the Commis- sion's recommendation
of a four-cent discount for certain  presorted first class mail. Id.
at 109. Finding fault with  both the Service's recommended three-cent
discount and an- other witness' 4.5 cent figure, the Commission
treated these  estimates as the outer range of possible discounts, and
select- ed a figure in between the two. Id. at 110. The Commission 
found the Service's estimate approach "novel" and "very 
conservative," while the other witness' approach took into  account
costs unrelated to presort savings. Id. In develop- ing its own
approach, based on the Service's Revenue and  Costs Analysis Report,
the Commission noted that "[t]he  record does not contain sufficient
information to develop a  more precise estimate." Id. at 110-11
(quoting PRC Op.  R84-1 at 368-69). Thus, as in the instant case, the
Commis- sion's approach was "discernable from the evidentiary record 
upon which the recommendation [was] based." Id. at 111.


Schurz Communications, Inc. v. FCC, 982 F.2d 1043 (7th  Cir. 1992), is
distinguishable. There, the Seventh Circuit 


criticized the Federal Communications Commission for  "throwing up
[its] hands and splitting the difference," rather  than assessing who
had the stronger case, when it enacted  new rules governing television
syndication rights. Id. at  1050. The court concluded that the agency
had overlooked  key evidence and ignored arguments that it previously
had  accepted, id., while the Commission here considered the  evidence
before it. San Antonio, Texas v. United States, 631  F.2d 831 (D.C.
Cir. 1980), clarified by 655 F.2d 1341 (D.C.  Cir. 1981), rev'd on
other grounds sub nom. Burlington  Northern, Inc. v. United States,
459 U.S. 131 (1982), is also  distinguishable; the Interstate Commerce
Commission of- fered no evidence or rationale for its "seven percent
solution,"  and in fact its reasoning could support any percentage, 
whether one or 99 percent. Id. at 852. Here, the Commis- sion chose a
percentage between two competing numbers,  representing a relatively
small range, and although the Com- mission could have explained in
greater detail why it chose  the low-end rather than the high-end of
this range, its path  was reasonably clear.


C. Alaskan Parcel Post Air Costs


United Parcel Service (UPS) first challenges the amount of  the
Commission's attributable costs for Parcel Post mail15 on  the ground
that the Commission improperly excluded from  them a substantial
portion of air transportation costs attribut- able to delivering
Parcel Post mail to the remote Alaskan  "bush country." Because the
Alaskan bush country is acces- sible only by air, all mail delivered
there, including nonprefer- ential Parcel Post mail, which is usually
carried by ground  transport, must be delivered by air, inflating
considerably the  costs of delivering Parcel Post mail to the area.
The Com- mission elected to attribute only a portion of the air




__________

n 15 "Parcel Post includes mailable matter weighing 16 ounces or  more,
but not exceeding 70 pounds in weight or 108 inches in  combined
length and girth. In general, Parcel Post is used for  matter not
eligible for mailing in any other Standard Mail subclass,  and
consists primarily of merchandise." PRC Op. R97-1 at 476.


costs to the Parcel Post subclass,16 however, concluding the  remainder
was attributable to the Act's "universal service  obligation," which
the Commission found to be the primary  cause of the air costs. See 39
U.S.C. s 101(a) (1994) (provid- ing Postal Service "shall provide
prompt, reliable, and effi- cient services to patrons in all areas and
shall render postal  services to all communities") (emphasis added).
Because the  statutory term "attributable" is ambiguous, we defer to
the  Commission's reasonable interpretation of it and uphold its 
consequent decision to attribute only a portion of Alaskan air  costs
to the Parcel Post subclass.


As noted above, section 3622(b)(3) requires "that each class  of mail
or type of mail service bear the direct and indirect  postal costs
attributable to that class or type." Id.  s 3622(b)(3). Thus, "all
costs that in the judgment of the  Rate Commission are the consequence
of providing a particu- lar class of service must be borne by that
class." National  Ass'n of Greeting Card Publishers, 462 U.S. at 833.
In this  ratemaking, as in past ratemakings, the Commission general-
ly attributed costs under the "volume variability" methodolo- gy,
which classifies a cost as "volume variable" and therefore 
attributable to a particular class if the cost rises as the  volume of
the particular class of mail rises. See Mail Order  Ass'n, 2 F.3d at
427 ("Traditionally, access costs have been  attributed to mail
subclasses based on a 'volume variability'  formula that related
'access costs' to a particular subclass's  mail volume. Generally, the
greater the volume of the sub- class's mail, the greater the
attributed access costs."); see  also Newsweek, Inc. v. USPS, 663 F.2d
1186, 1207-08 (2d Cir.  1981), aff'd and remanded, 462 U.S. 810
(1983). Here, how- ever, the Commission elected to deviate from strict
volume  variable causation because of the unusual and constraining 
geographical circumstances of Alaskan Parcel Post service.




__________

n 16 Although the Act directs the Commission to recommend  "changes in
rates or fees in each class of mail" 39 U.S.C. s 3622(a)  (emphasis
added), the Commission has carved out discrete subclass- es of mail
classes that it deems warrant separate consideration.


In its decision the Commission applied a "premium costing  approach"
under which the attributable costs of delivering  Alaskan Parcel Post
were "calculated based on the nationwide  average costs of [ ] highway
transportation," while "[t]he  remaining portion, approximately $70
million for the last  year, is transferred to the institutional cost
pool and recov- ered through the markup procedure pursuant to the
Act."  PRC Op. R97-1 at 220. The Commission's decision explained  this
attribution only briefly:


The costs of serving areas without road access, the so- called Bush
Country of Alaska, are considerably higher  than the costs of
providing service to other areas in the  United States. Since the
Postal Service's universal ser- vice obligation extends to citizens of
all regions of the  United States, it would not be appropriate to
recover all  these costs from the nonpreferential classes carried by 


Id. The Commission explained its reasoning more clearly  and
extensively in the 1990 postal ratemaking decision in  which, as the
Commission specifically noted here, for the first  time "a portion of
the costs of intra-Alaskan transportation  costs ... ha[d] been
considered institutional, although they  are recognized as being
volume variable in nature." Id.; see  Opinion and Recommended Decision
of the United States  Postal Commission in Docket No. R90-1 (January
4, 1991),  III-194 to -237 (JA vol. i 814).


In the 1990 ratemaking the Commission determined:


The record supports a finding that nonpriority Alaska air  costs are
attributable only to the extent that they substi- tute for the surface
costs that would be incurred if that  transportation service were
available. The remaining  costs, which we refer to as the "universal
service obli- gation premium," are institutional. These costs are 
caused by the Postal Service's statutory obligation to  serve the
entire nation.


Id. at III-195. The Commission defended its use of the  "premium
costing approach" as reasonable under the circum- stances:


Our approach is the one supported by the record before  us. The
evidence shows that the costs are being over- attributed, and it is
our statutory duty to be as accurate  as possible in attributing
costs. Over-attribution can be  just as much an error as the
under-attribution proscribed  by section 3622(b)(3). Our approach is a
better reflection  of reality. And, as this record shows, the
potential to  support the rate design and rate schedules of two sub-
classes, parcel post and Priority Mail, requires that the  costing


Id. at III-212. The Commission also explained why it consid- ered the
Alaskan air costs caused by and therefore attribut- able to the Postal
Service's universal mail obligation:


In considering these costs and the mail which is being  carried on both
mainline and bush transportation, we  look for the true causal
connection. Regardless of how  these costs might actually vary with
volume, we find that  the premium is caused by the statutory
obligation to  provide universal service rather than the mail volumes.
 It is true that if none of this mail existed, the costs would  not be
incurred. It is difficult to believe, however, that  this
nonpreferential mail would be incurring these very  high air costs in
the absence of a statutory mandate to  serve the entire nation. The
Postal Service interprets its  duty as one to offer its basic services
to every part of the  country, and not to deny the lower priced parcel
post  service to people who live in remote areas which have  only
expensive transportation available.


Id. at III-213 to -14 (footnote & record citation omitted).  The
Commission's reasoning adequately supports its bifurcat- ed
attribution of Alaskan air costs.


Nevertheless, UPS contends the Commission's use of the  premium cost
approach violates the Act because it either (1)  fails to allocate to
Parcel Post the Alaskan air costs that the  Commission has found
attributable to that subclass or (2) fails  in the first instance to
find that such costs are attributable to  Parcel Post even though the
Commission acknowledged the  costs "are recognized as being volume
variable in nature." 


PRC Op. R97-1 at 220. UPS's first objection is easily  answered: the
Commission specifically found that the "premi- um" air delivery costs
are attributable not to Parcel Post  service but to the statutory
universal service obligation. As  for the second, although the
Commission has generally used  volume variability to attribute costs,
the Act itself does not  require any specific cost method or define
the term "attribut- able," which, as the Commission's analysis
demonstrates, can  have various meanings that support various
attribution meth- ods. See National Ass'n of Greeting Card Publishers,
462  U.S. at 825-26. ("We agree with the Rate Commission's  consistent
position that Congress did not dictate a specific  method for
identifying causal relationships between costs and  classes of mail,
but that the Act 'envisions consideration of all  appropriate costing
approaches.' ") (quoting Commission's de- cision). Instead, the Act
"leaves it to the Commissioners, in  the first instance, to decide
which methods provide reasonable  assurance that costs are the result
of providing one class of  service." Id. at 833; see also id. at 827
("On its face, there is  no reason to suppose that s 3622(b)(3) denies
to the expert  ratesetting agency, exercising its reasonable judgment,
the  authority to decide which methods sufficiently identify the 
requisite causal connection between particular services and 
particular costs."). Because "the statute is silent or ambigu- ous" on
which cost method to use, "the question for the court  is whether the
agency's answer is based on a permissible  construction of the
statute." Chevron USA, Inc. v. Natural  Resources Defense Council,
Inc., 467 U.S. 837, 843 (1984); see  also National Ass'n of Greeting
Card Publishers, 462 U.S. at  814-15. Based on its analysis in the
1990 ratemaking decision,  we conclude that the Commission's choice of
the premium  methodology reflects a reasonable construction of the Act


D. Priority Mail Institutional Costs


UPS next challenges the Commission's allocation of Priori- ty Mail
institutional costs.17 The Commission assigns institu-




__________

n 17 "Priority mail is a service available for all mailable items up to
 70 pounds in weight that offers somewhat more expedited delivery 


tional costs by establishing a separate markup for each class  of mail
and then applying the markup to the class's attribut- able costs. In
this ratemaking the Commission recommended  an institutional markup
for Priority Mail of 66.1%. UPS  contends this markup is artificially
low and shifts to First  Class mail institutional costs reasonably
assignable to Priority  Mail in violation of section 3622(b)(3). We
conclude the  institutional costs for Priority Mail are, as the
statute re- quires, "reasonably assignable" to the subclass and we
there- fore uphold them.


As we noted above, once the Commission has established  attributable
costs under its two-tier cost methodology, it must  then allocate
institutional costs by " 'reasonably assign[ing]'  the remaining costs
to the various classes of mail on the basis  of the other factors set
forth in s 3622(b)." National Ass'n of  Greeting Card Publishers, 462
U.S. at 815 (internal citation  omitted). In assigning Priority Mail
institutional costs, the  Commission relied heavily on the second
statutory factor  included in section 3622(b): "the value of the mail
service  actually provided each class or type of mail service to both 
the sender and the recipient, including but not limited to the 
collection, mode of transportation, and priority of delivery."  39
U.S.C. s 3622(b)(2). The Commission cited testimony that  Priority
Mail has a high "intrinsic value of service," which  might justify a
higher share of institutional costs, but also  noted that it has a
"high own-price elasticity," meaning that  rate increases might drive
away customers despite the high  intrinsic value, therefore calling
for a lower markup. PRC  Op. R97-1 at 359. The Commission further
pointed to testi- mony questioning the value of Priority Mail's
service because  (1) it often falls short of one- and two-day delivery
bench- marks, (2) its service will deteriorate further with implemen-
tation of a new processing network service, (3) its market 




__________

n than First-Class Mail. On this basis, it competes in the two-day 
document and package market. Priority Mail also constitutes the 
extension of First-Class-Mail services to pieces weighing 11 ounces 
or more. Consequently, Priority Mail consists both of monopoly  letter
mail and items that could be delivered by a competing  carrier...."
PRC Op. R97-1 at 352.


share has been decreasing, and (4) it lacks enhancements  available
with private priority delivery services, such as auto- matic insurance
coverage, billing, payment and rate options  and guaranteed delivery.
Id. at 360-62. Based on its per- ception of the value of Priority Mail
service and of the  deleterious effect a price increase might have,
the Commis- sion concluded that a "reduction in the proportional
contribu- tion by Priority Mail is not unreasonable," especially since
 even the lower markup the Commission recommended led to  a rate
increase for Priority Mail that exceeded the system- wide average. Id.
at 362. UPS challenges the 66.1% Priority  Mail markup primarily on
two grounds. We find neither one  persuasive.


First, UPS contends that in the 1997 ratemaking the  Commission
impermissibly "changed course" without explana- tion because for the
first time it assigned a lower markup to  Priority Mail than to
regular First Class mail. This argu- ment misapprehends the
Commission's institutional cost as- signment process. The Commission
has not, in this ratemak- ing or previous ones, assigned the Priority
Mail markup  based on its relationship to the First Class markup, as
is  manifest from the widely varying gaps between the two  markups in
each of the ten ratemakings conducted under the  Act. See JA vol. i
706. Instead, the Commission assigned  the markup here, as before,
based on consideration of the  mandatory statutory factors. See PRC
Op. R97-1 at 371.18  It was these factors, and the second one in
particular, that led  the Commission to assign lower institutional


UPS also argues that consideration of the fourth and fifth  statutory
factors ("the effect of rate increases upon the 




__________

n 18 The Commission did remark that, because Priority Mail is "an 
extension of First Class Letters and Sealed Parcels," assigning it "a 
markup similar to First-Class letters is justified," PRC Op. R97-1  at
362, but only after it assigned the markup-apparently as back-up 
justification and in answer to UPS's claim that the relationship 
between the two markups should stay the same as in the previous 
ratemaking. See PRC Op. R97-1 at 359-60.


general public, business mail users, and enterprises in the  private
sector of the economy engaged in the delivery of mail  matter other
than letters" and "the available alternative  means of sending and
receiving letters and other mail matter  at reasonable costs," 39
U.S.C. s 3622(b)(4), (5) requires that  the Commission assign lower
universal costs to the monopoly  regular First Class mail than to
Priority Mail because those  factors were intended to protect the
interests of First Class  customers, who have no private alternative,
and of Priority  Mail competitors, each of which will be harmed by
higher  First Class and lower Priority Mail rates. We disagree.  While
the Commission must " 'take into account all the rele- vant factors
and no others,' " Mail Order Ass'n, 2 F.3d at 426  (quoting
Association of Am. Publishers, 485 F.2d at 775), it  need not give
each factor equal weight. " '[U]nder familiar  jurisdictional
principles,' " we " 'may not, and under human  limitations generally
could not, reassess the weights given by  a rate-making agency to
different factors, absent a legislative  direction as to precisely
what gravity each factor bears.' " Id.  (quoting Association of Am.
Publishers, 485 F.2d at 774-75).  Given that the Act provides no such
direction, we cannot fault  the Commission's determination that the
second factor is the  decisive one here. In any event, UPS's reading
of the  statutory provisions it invokes is unduly narrow. By its 
terms, s 3622(b)(4) allows the Commission to consider lower- ing rates
in order to protect "the general public [and] busi- ness mail users,"
as well as raising them in the interests of  "enterprises in the
private sector ... engaged in the delivery  of mail matter." As to s
3622(b)(5), the Commission has  consistently, and reasonably, held
that it authorizes a reduc- tion in rates to maintain the position of


E. "Local Only" Mail


Finally, Niagara Telephone Company (Niagara) challenges  the
Commission's rejection of Niagara's proposed separate  rate for mail
deposited in "local only" mail boxes located at  individual post
offices. Niagara maintains that, because this  mail is sorted by the
sender, it costs the Postal Service less to 


deliver than other First Class mail and that this savings  should be
passed on to customers. The Commission rejected  Niagara's proposal
because "the record remains undeveloped  on matters critical to a
determination on the merits, such as  its impact on net revenues." PRC
Op. R97-1 at 345. We see  no defect in the Commission's


In Mail Order Ass'n, we upheld the Commission's decision  not to
establish a separate classification and rate, proposed by  Niagara,
for "non-transported" mail that never leaves the  post office where
deposited but is placed directly into on-site  post office boxes
(specifically, utility bills Niagara sent to  customers). The court


Even though 39 U.S.C. s 3622(b)(3) requires each "class  of mail or
type of mail service" to recover its attributable  costs, that section
does not require creation of a separate  class of mail for every
single cost characteristic. As we  noted before, s 3622(b)(7) allows
the Commission to con- sider the simplicity of the rate structure, and
a separate  rate for every group of mailers with special cost savings,
 no matter how small the group, would produce a hope- lessly
complicated rate schedule. This does not mean  the Commission may
always reject proposed cost-based  classifications in order to avoid
complexity in the rate  schedule; in some cases the facts might be
compelling  enough to require a new classification. Here, however, 
given the complete absence of evidence establishing the  existence of
a substantial category of mail systemically  involving lower costs,
the Commission's rejection of Ni- agara's proposal was not arbitrary
or a violation of  s 3622(b)(3).


Mail Order Ass'n, 2 F.3d at 426. In this case too there is no  record
evidence to compel creation of the mail subclass  Niagara proposes and
we therefore conclude the Commission  reasonably declined to do so.


For the preceding reasons, the petitions for review are


Denied.