chapter 1
compliance with statutory policies
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Office. The Postal Service filed a motion to dismiss the proceedings on jurisdictional grounds. The PRC granted the motion of the Postal Service in a decision issued December 3, 2003.

D. Postal Cost Apportionment and Postal Ratemaking Developments

1. Capital One Negotiated Service Agreement: Docket No. MC2002-2

     On September 19, 2002, the Postal Service filed a request with the PRC seeking a recommendation on limited rate and classification changes designed to implement a contractual arrangement with Capital One Financial Services Corporation, one of the largest users of First-Class Mail service. The agreement with Capital One Financial Services Corporation is the first attempt by the Postal Service to establish rates applicable to only one mailer through a negotiated service agreement (NSA). The Postal Service requested the Commission recommend establishing additional discounts on an experimental basis for Capital One's First- Class Mail letters volume above a threshold of 1.225 billion pieces annually. These discounts would increase with higher levels of volume above the threshold, but would not be available on any volume mailed before the threshold was reached. Availability of the discounts to Capital One would also be conditioned on Capital One changing its practices relating to undeliverable-as-addressed (UAA) mail. Currently, most of Capital One's UAA mail is physically returned to Capital One, in accordance with standard First-Class Mail service features. Under the NSA, Capital One would agree to accept electronic notice of nondelivery as a substitute for physical returns. This change would yield substantial cost savings for the Postal Service. To implement this aspect of the

agreement, the request sought a recommendation for a waiver of the fee currently charged for this service.

     The Postal Service proposed the Capital One Services NSA as a limited, three-year experiment under the PRC's expedited procedures for experimental classification proposals. The PRC, however, declined to consider the case under the rules for experiments. Three parties, including the PRC's Office of Consumer Advocate (OCA), filed cases in opposition. The PRC also took the unusual step of calling an economist as its own witness to address the issue of the effects of the NSA on competition.

     On March 31, 2003, the Postal Service, Capital One Services, and the PRC's OCA signed a Stipulation and Agreement in which the OCA withdrew its opposition to the NSA. In exchange for the OCA's support of the Capital One NSA and the Postal Service's request for rate and fee changes, the Postal Service set forth the process for proposal, consideration, and negotiation of NSAs comparable to the Capital One NSA. In addition to the three main signatories, 10 other interveners signed the Stipulation and Agreement.

     On May 15, 2003, the PRC issued its decision recommending the requested rate and fee changes with the following exception: It limited the total amount of discounts available to Capital One to the amount of anticipated cost-savings from its use of the service that provides electronic information in lieu of the physical return of UAA pieces. On June 2, 2003, the governors of the Postal Service approved the PRC's recommendations; their decision was implemented on September 1, 2003.

2. Experimental Periodicals Co-palletization Drop Ship Discounts Case: Docket No. MC2002-3

     On September 26, 2002, the Postal Service filed a request with the PRC for rate incentives to induce Periodicals mailers to prepare and enter more mailings on pallets,

Chapter 1
Compliance with Statutory Policies Introduction
  1. Fundamental Service to the People
  2. The Workforce
  3. Service to Small or Rural Communities
  4. Postal Cost Apportionment and Postal Ratemaking Developments
  5. Transportation Policies
  6. Postal Service Facilities, Equipment, and Supplies
Chapter 2 Postal Operations

Chapter 3 Financial Highlights

Chapter 4 2003 Performance Report and Preliminary 2005 Annual Performance Plan