USPS v. PRC

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 5, 2018 Decided April 6, 2018

No. 16-1412

UNITED STATES POSTAL SERVICE,
PETITIONER

v.

POSTAL REGULATORY COMMISSION,
RESPONDENT

On Petition for Review of Orders
of the Postal Regulatory Commission

David C. Belt, Attorney, U.S. Postal Service, argued the
cause and filed the briefs for petitioner. Stephan J. Boardman,
Chief Counsel, entered an appearance.

Dana Kaersvang, Attorney, U.S. Department of Justice,
argued the cause for respondent. With her on the brief were
Michael S. Raab, Attorney, David A. Trissell, General Counsel,
Postal Regulatory Commission, and Christopher J. Laver,
Deputy General Counsel.

Before: PILLARD, Circuit Judge, and EDWARDS and
WILLIAMS, Senior Circuit Judges.

Opinion for the court filed by Circuit Judge PILLARD.
 2

PILLARD, Circuit Judge: The United States Postal Service
proposed to discontinue its Return Receipt for Merchandise
(RRM) service in 2014. RRM service offers retail and
commercial mailers of merchandise the option to affix to their
packages a postcard-style form for the recipient to sign, which
the Postal Service then returns to the mailer as confirmation of
delivery. Citing a precipitous eighty-six per cent drop in RRM
service usage over the three years from 2011 to 2014, the Postal
Service argued that RRM service had become outdated and
inefficient in the wake of electronic delivery confirmation
capacities. The Postal Regulatory Commission agreed. As
required by the statute and regulations governing additions to
or deletions from the lists of Postal Service products, the
Commission considered a range of factors—including price
effects and the interests of RRM service users—before it
approved the discontinuation.

In the same orders, however, the Commission took the
unprecedented step of holding that the discontinuation of a
service on the Postal Service’s authorized list of market-
dominant products also amounted to a rate increase subject to
the statutory rate cap. Despite evidence that former RRM
service customers were now more cheaply obtaining electronic
signature delivery confirmation, the Commission assumed all
remaining RRM customers would continue to insist on physical
postcard delivery confirmation which, absent RRM service,
would only be available at a higher price, ancillary to Certified
Mail service. By treating the discontinuation of RRM service
as a price hike subject to the rate cap, the Commission in effect
conditioned dropping RRM on the Postal Service’s willingness
to “pay” hundreds of thousands of dollars via a rate cap
application that would force the Postal Service to lower overall
prices on its other ancillary services.
 3
The Postal Service now seeks review of the Commission’s
orders, arguing that they exceed the Commission’s statutory
authority and are arbitrary and capricious. We grant the Postal
Service’s petition for review and hold that the Commission
lacks statutory authority to subject the wholesale
discontinuation of RRM service to the rate cap applicable to
rate increases.

I.

A.

In 2006, Congress enacted the Postal Accountability and
Enhancement Act (Act), Pub. L. 109-435, 120 Stat. 3198, to
reform U.S. postal laws. In the decades leading up to the Act’s
passage, Congress had authorized the Postal Service to set its
own postage rates, “with the goal of breaking even.” See
United States Postal Service v. Postal Regulatory Commission,
785 F.3d 740, 744 (D.C. Cir. 2015) (USPS I). Critics objected
that, because the Postal Service exercised market power
allowing it to pass on increased costs to consumers, it lacked
incentives to improve its efficiency. See id. Congress
responded with legislation encouraging the Postal Service to
reduce costs, increase efficiency, achieve stability in rates, and
empowering the Service to act with flexibility to experiment
with ways to improve its appeal to customers. 39 U.S.C.
§ 3622(b)(1)-(9); see also S. Rep. No. 108-318, at 1 (2004).
The Act also “guarantees a higher degree of transparency to
ensure fair treatment of customers of the Postal Service’s and
those companies competing with the Postal Service’s
competitive products.” S. Rep. No. 108-318, at 1.

The parties here invoke two principal sections of the Act:
One, Section 3642, governs the Commission’s pre-approval,
based on a balancing of several criteria, of changes to the
composition of “the lists” of competitive and market-dominant
 4
products the Postal Service offers. 39 U.S.C. § 3642(a). The
Postal Service’s competitive products vie with similar products
on the open market, while the Postal Service exercises
substantial market power or enjoys a legal monopoly over its
market-dominant products. Id. The other provision in play,
Section 3622, calls on the Commission to enforce a cap on
“changes in rates” of market-dominant products and services
to ensure that average increases in prices of the group of
products within a given classification do not exceed the rate of
inflation. Id. § 3622(d)(1)(A). As the Postal Service
understands it, the Act confines the Commission’s review of
product discontinuations to what Section 3642 commands
when the Postal Service “change[s] the list[s]” of products.
The Commission, for its part, asserts authority to conduct
twofold review of a product discontinuation: It argues that
some changes to the product lists are also tantamount to rate
increases, at least to the extent that discontinuation of a product
might funnel customers to a more costly alternative—a form of
abuse the Commission asserts Congress authorized it to control
by subjecting such product discontinuations to review under
both Section 3642 and 3622.

1. Section 3642 of the Act charges the Postal Regulatory
Commission with maintaining and publishing accurate product
lists in the Mail Classification Schedule, and authorizes the
Commission to “change the list[s]” of market-dominant and
competitive products by adding, removing, or transferring
products. Id. § 3642(a). Congress fashioned the initial lists of
available market-dominant and competitive products in the
Act. See 39 U.S.C. §§ 3621, 3631. First-class letter mailing,
for example, was characterized as a market-dominant product,
while bulk parcel post was deemed competitive. Compare id.
§ 3621(a)(1), with id. § 3621(a)(3). In addition to letter mailing
and parcel delivery, the Postal Service offers a host of ancillary
services, including mechanisms for commercial and retail
 5
customers to track and verify the receipt of their missives.
Ancillary services such as RRM fit within the class of “Special
Services” on the Postal Service’s list of market-dominant
products. See Postal Regulatory Comm’n, Mail Classification
Schedule Pt. A, §§ 1500, 1505.14 (2018).

As it set the initial product lists, Congress also recognized
that both supply and demand for a given product would not
remain constant in a “rapidly” changing market. See S. Rep.
No. 108-318, at 18. The Commission may add, remove, or
transfer a listed product “[u]pon request of the Postal Service
or users of the mails, or upon its own initiative.” 39 U.S.C.
§ 3642(a). The Act invests the Postal Service with substantial
flexibility to manage and innovate with its products, subject to
holistic review of additions to or deletions from its lists. See
Id. §§ 403(b), 3642; see also S. Rep. No. 108-13, at 18 (“The
goal of increased flexibility and increased responsiveness to
customers’ needs requires that the Postal Service manage its
product offerings.”). Whenever the Postal Service seeks
permission to change the menu of market-dominant products,
it must publish a new list in the Federal Register that
“indicate[s] how and when any previous lists . . . are
superseded.” 39 U.S.C. § 3642(d)(2).

In determining whether to add, remove, or transfer a listed
product, the Commission must consider its availability in the
private sector, the “views of those who use the product,” and
the likely impact of the change on small businesses. Id.
§ 3642(b)(3). Those factors are capacious, and, as the
Commission recognizes, require “careful consideration,” time,
and often additional information to evaluate. See Order No.
3670, Order on Price Adjustments for Special Services
Products and Related Mail Classification Changes (Dec. 15,
2016), at 10-11. Regulations implementing Section 3642’s list-
amending authority provide that “the product lists and the Mail
 6
Classification Schedule may be modified subject to the
procedures specified in this part.” 39 C.F.R. § 3020.1. Those
procedures include specific requirements of information the
Postal Service must provide to the Commission in support of
its requested changes, id. at §§ 3020.31-3020.32, and call on
the Commission to post any proposed change for public
comment, id. at § 3020.33; see id. § 3020.53. The Commission
then must scrutinize proposed changes, together with any
comments, to ensure that, among other things, the product’s
suggested list location (competitive or market-dominant),
quality, desirability to the public, effect on small business, and
its pricing comport with the Act’s overall objectives of
enhancing the efficiency and competitiveness of the Postal
Service and preventing abuse of its market power. Id. at
§ 3020.32. In sum, in its Section 3642 review of changes to the
menu of products the Postal Service offers, the Commission
has broad authority to act in the public interest and to prevent
the Postal Service from abusing its unique and powerful market
position.

2. With respect to market-dominant products, Congress
separately charged the Commission with overseeing and
limiting the Postal Service’s annual price increases. 39 U.S.C.
§ 3622. Any price change for a market-dominant product
requires the Commission’s approval, which can be granted
subject to the “rate cap,” that is, an “annual limitation on the
percentage changes in rates” tied to the rate of inflation. Id.
§ 3622(d)(1)(A), (C); see USPS I, 785 F.3d at 744-45; United
States Postal Service v. Postal Regulatory Comm’n, No. 16-
1284, slip op. at 4-5 (D.C. Cir. Apr. 6, 2018) (USPS II). As we
have recently explained, applying the rate cap entails two
analytically distinct steps:

First, the Commission must determine whether the Postal
Service’s proposed change even amounts to a covered change
 7
in rates. Under the Commission’s current interpretation of the
Act, once revised in response to USPS I, a “change in rates”
may include a change “either to the posted rates,” or, as the
Commission contends occurred here, an indirect, de facto
change to “the rates that customers actually pay.” USPS I, 785
F.3d at 751. Only a “change in rates” is subject to the rate cap.
We have, however, held that the reference to “rates” in Section
3622 is sufficiently ambiguous to include, for example, new,
non-price mailing requirements that effectively force existing
mail into a higher price category, or “rate cell.” Id. at 751-52.
For purposes of applying the rate cap, “[t]he term rate cell
means each and every separate rate identified in any applicable
notice of rate adjustment for rates of general applicability.” 39
C.F.R. § 3010.23(a)(2). More recently, we reminded the
Commission that it can regulate changes to mail-preparation
requirements under the guise of the price cap only if it has
reasonably “single[d] out” those changes “that induce mailers
to shift to a higher-priced service.” USPS II, slip op. at 10-11.

Second, if the Commission determines that there has
indeed been a proposed change in the rate of a market-
dominant product, the Commission applies formulas laid out in
the Commission’s regulations to determine whether the extent
of the change is permissible under the rate cap. See 39 C.F.R.
§ 3010.23(c)-(d); see also USPS II, slip op. at 13. The
Commission mechanically uses so-called “historical volume”
data—the number of mailers using the product last year—to
calculate the weighting of the rate change to be charged against
the rate cap for the current year. 39 C.F.R. § 3010.23(d).
Simplifying the calculation for our purposes, the Commission
multiplies that assumed static number of mailers by the
increase or decrease in the price of the product. Id.
§ 3010.23(c)-(d). In other words, the Commission posits that
the same mail will be sent in the current year as in the prior
year, but at the higher or lower price. After making that
 8
calculation for each product in a “class” of products, the
Commission applies the rate cap to the sum of the weighted
average price changes of all the products in the class. See id;
USPS II, slip op. at 4-5.

B.

Before the Postal Service proposed to discontinue RRM
service, merchandise mailers had several delivery-
confirmation service options, the most pertinent of which are
listed below, accompanied by their December 2014 prices:

• Signature Confirmation ($2.25), providing the mailer
an electronic copy of the recipient’s signature online or
by email, in addition to online access to tracking
information, see Postal Regulatory Comm’n, Mail
Classification Schedule § 1505.17; and
• Return Receipt for Merchandise (RRM) ($4.20),
mailing to the merchandise mailer a physical postcard
bearing the recipient’s signature, see id. § 1505.14.

Joint Appendix (J.A.) 153. Postcard delivery confirmation also
was available for an extra charge by combining Certified Mail
service with a Return Receipt add-on service. Certified Mail
service—comprised of proof of mailing, electronic tracking,
delivery confirmation, and various recordkeeping—is
available for a baseline price of $3.15, J.A. 149, and the Postal
Service offers Certified Mail customers the option to get the
recipient’s signature confirming delivery electronically for an
extra $1.30 or on a physical postcard for an extra $2.60. Postal
Regulatory Comm’n, Mail Classification Schedule § 1505.5;
J.A. 153.

The Postal Service in 2014 sought to discontinue RRM
service as outmoded. See Request of the United States Postal
Service to Remove Return Receipt for Merchandise Service
 9
from the Mail Classification Schedule (Nov. 17, 2014) (RRM
Discontinuation Request). RRM service lacked tracking
capacity and its package-receipt information was not
electronically accessible, leading many customers to abandon
it in favor of electronic signature confirmation. See id.
Attachment B at 2, 5 n.11. Between 2011 and 2014, purchases
of RRM service fell from more than 1.2 million to less than
170,000, or more than eighty-six per cent. See id. Attachment
B at 2. The Postal Service proposed to streamline its list of
offerings by discontinuing the service. Id.

After soliciting public comment, the Commission in Order
No. 2322 approved the Postal Service’s request to discontinue
RRM service. See Order No. 2322, Order Conditionally
Approving Removal of Return Receipt for Merchandise
Service from Mail Classification Schedule (Jan. 15, 2015)
(Order No. 2322). The sole customer comment, submitted by
someone who did not claim to be a commercial or retail mailer
eligible for RRM service, objected that mailers might have a
“legal need” for a non-electronic signature or lack the ability to
receive an electronic version and, if RRM service were
discontinued, need to use Priority Mail rather than Standard
Post at an increased price in order to be eligible for the Certified
Mail option through which the customer could then opt to pay
extra for the postcard return receipt. J.A. 163. The Public
Representative was the other commenter, and she similarly
noted that the discontinuation of RRM service would disserve
those businesses that “do not have broadband access or . . .
prefer to have a physical return receipt postcard in their
records.” J.A. 167. She faulted the Postal Service for failing
to “quantify the number of customers that may be left with no
alternative for obtaining a physical return receipt”—customers
who might resort to the costlier classes of mail eligible, at yet
further cost, for Certified Mail and Return Receipt services. Id.
 10
The Commission’s Order No. 2322 held that discontinuing
RRM satisfied the statutory criteria under 39 U.S.C. § 3642(b)
and the regulatory requirements of 39 C.F.R. §§ 3020.30 et seq.
for removing a service from the Mail Classification Schedule.
See Order No. 2322, at 12-14. The Commission determined
that, if RRM service were discontinued, “similar services”
would still be available from private-sector shippers such as
United Parcel Service and Federal Express, as well as from the
Postal Service itself. Id. at 12. Given that availability, and the
lack of any complaints from the vast number of former RRM
users who had migrated to electronic signature confirmation,
the Commission did not believe that customers would oppose
the discontinuation of RRM service. Id. Considering small
business concerns in particular, as the statute requires, the
Commission likewise lacked any negative feedback from them
about the proposal, and found any material effect unlikely. Id.
at 13. Regarding potential price implications for any customers
who might still require physical return receipt postcards, the
Commission found “that the Postal Service’s decision to
remove a service with declining volumes and revenue
outweighs the potential harm that current customers may face.”
Id.

The Commission had never before applied the Section
3622 rate cap as a condition of Section 3642 product-
discontinuation review, but in this case it went on to treat the
proposed discontinuation of RRM service as a proposal to
change the rate for a market-dominant product within the
meaning of Section 3622(d), thereby subject to the statutory
rate cap. Id. at 6-15. The Postal Service contended that the
proposal “is not changing the rates of RRM service . . . but
instead is removing the service altogether.” Id. at 5. But the
Commission focused on the resultant “deletion” of a “rate cell”
to hold that discontinuation of a product also necessarily
deletes a rate cell and so, it reasoned, is a change in rates to
 11
which the rate cap applies. Id. at 9; Order Resolving Issues on
Remand, at 3 (Oct. 31, 2016) (Order No. 3597).

In so doing, the Commission imported its analysis from
Order No. 1890—an Order which, in its various iterations, we
have now twice had occasion to review and twice deemed
invalid. See USPS I, 785 F.3d at 753-56; USPS II, slip op. at
8-14. In USPS I, we reviewed Order No. 1890. 785 F.3d at
751. That order concerned a change to the mail-preparation
requirements for certain bulk mail to qualify for automation
discounts. The Postal Service offers discounts to mailers who
put certain barcodes on their mail before sending it, with higher
discounts offered for more information-rich barcodes. When
the Postal Service proposed to eliminate the discount for
relatively simple barcoding—deleting that “rate cell,” with its
particular requirements and corresponding price—the
Commission noted that mailers might not change their mail
preparation to adopt the more sophisticated barcodes that
would entitle them to an even steeper discount than the
eliminated one. The Commission thought elimination of the
discount associated with the simpler barcode should thus be
treated as “shifting mailpieces to higher rates” charged for non-
barcoded mailpieces. See id. We held that the statute’s
references to “rates” and “changes in rates” were sufficiently
ambiguous to potentially encompass some mail-preparation
changes with rate effects, but that treating cessation of the
discount for the simpler barcode as a “change in rates” was
arbitrary and capricious. Id. at 751-56. The agency had failed
to “articulate a comprehensible standard” for determining the
circumstances in which such a change to mail preparation
requirements would trigger the rate cap. Id. at 753-56.

On remand from USPS I, the Commission sought to clarify
its standard by adding that, when a change to mail preparation
requirements results in the “deletion of a rate cell” and/or the
 12
“redefinition of a rate cell,” the mail preparation change
amounts to a rate change subject to the rate cap. Order No.
3047, Order Resolving Issues on Remand, at 15 (Jan. 22,
2016).

Meanwhile, after this court in USPS I remanded the
Commission’s implicit-rate-change test as arbitrary and
capricious, the Postal Service and Commission agreed that the
Commission should reconsider its RRM service Order No.
2322. In Order No. 3597, it affirmed Order No. 2322,
reiterating that the discontinuation of RRM service was a
change in price because it “constitute[s] the deletion of a rate
cell.” Order No. 3597, at 3. Applying the rate cap to that
putative rate change, the Commission identified Certified Mail
with Return Receipt as a “suitable alternative” to RRM
service—and, indeed, the only alternative, with the “key
characteristic” being “the physical mailing of a receipt
postcard.” Id. at 4-5. The Commission thus required the Postal
Service to account within the rate cap for all of the prior year’s
RRM service customers as a “mail volume shift from RRM
Service to Certified Mail (with Return Receipt),” multiplied by
the full price difference between the discontinued RRM service
and Certified Mail with Return Receipt. Id. at 5.

In view of the Commission’s ruling that the price cap
applies, the Postal Service indefinitely deferred discontinuation
of RRM service pending resolution of the current petition.

The Postal Service petitioned for review a second time in
the barcodes case, and also filed the petition regarding RRM
service now under review. In the barcodes case, the Postal
Service argued that the Commission had still failed to clarify
how, consistent with the statutory definition of “rates” and
“changes in rates,” the Commission could subject the barcode
change to the rate cap. We vacated Order No. 3047 because
 13
the Commission failed to establish that its new test was
confined to those changes to mail preparation requirements that
have rate effects; the test therefore impermissibly “expand[ed]
the Commission’s regulatory domain beyond any permissible
meaning of ‘rates’ under § 102(7) and ‘changes in rates’ under
§ 3622.” USPS II, slip op. at 8.

We consider here the Postal Service’s challenge to the
Commission’s orders holding that the Postal Service may
discontinue RRM service only if it counts the discontinuation
as a price increase within the statutory rate cap. Those orders,
says the Postal Service, exceed the Commission’s statutory
authority under Chevron, and are arbitrary and capricious.

II.

A.

We begin with the statute, and ask whether Congress
authorized the Commission to treat the discontinuation of a
product under 39 U.S.C. § 3642 as also a change in “rates,” as
defined by 39 U.S.C. § 102(7), that is subject to the statutory
rate cap imposed by 39 U.S.C. § 3622. The Postal Service
contends that the statute expressly sets forth in Section 3642
the criteria by which the Commission may review a decision to
change the lists of postal products, and that also subjecting a
product list amendment to Section 3622’s rate cap contradicts
the statute’s terms and logic. The Commission counters that it
may review a product discontinuation both under Section 3642,
to determine whether the Postal Service may cease offering a
product, and under Section 3622 for rate cap compliance. Our
review of this statutory dispute is governed by Chevron, U.S.A.,
Inc. v. Natural Resource Defense Council, Inc., 467 U.S. 837
(1984), under which we first ask whether Congress has
“directly spoken to the precise question at issue.” Id. at 842.
If it has, “that is the end of the matter; for the court, as well as
 14
the agency, must give effect to the unambiguously expressed
intent of Congress.” Id. at 842-43; see also USPS I, 785 F.3d
at 750. We conclude that the Act directs the Commission to
review product discontinuation requests under the regime
articulated in Section 3642, and that the Commission’s
authority to limit changes in rates under the rate cap does not
reach changes to product availability.

The Act empowers the Commission to conduct different
review processes for two distinct types of changes: (1) review
under Section 3642 of additions to, deletions from, or shifts
between the lists of competitive and market-dominant products
the Postal Service offers; and (2) review under Section 3622 of
increases to Postal Service rates for products continuing from
year to year on the market-dominant list. Each form of review
is geared to the distinct degree of latitude the Act envisions for
the Postal Service regarding the open-ended universe of
potential product offerings and the closely capped prices to be
charged for them. Congress designed the Act to encourage the
Postal Service’s flexibility and experimentation, urging the
Postal Service to generate products of greater public appeal
while streamlining its offerings to make them easy for
customers to access and understand. 39 U.S.C. §§ 403(b),
3622(b), 3642; see also S. Rep. No. 108-13, at 18. Congress
gave the Commission authority to review and approve such
proposals, see 39 U.S.C. § 3642(a), but Congress did “not
intend for [that authority] to result in Postal Regulatory
Commission management of the Postal Service’s product
offerings,” S. Rep. No. 108-318, at 18. Meanwhile, to guard
the public from abuse of the Postal Service’s partial monopoly,
Congress provided that the rate of increases in prices for the
segment of products over which the Postal Service exercises
market power are to be closely reined in by the Commission’s
calculation and enforcement of an inflation-adjustable rate cap.
39 U.S.C. § 3622(d).
 15
We conclude Congress provided review under Section
3642 as a sufficient and complete mechanism for the
Commission’s consideration whether the lists of available
postal products should be changed. Section 3642 lays out the
process and substantive considerations for managing the lists.
It requires a broad, contextual consideration of the very market-
power concerns that the Commission claims support its
application of Section 3622’s inflation-based limit on rate
changes. In particular, for determinations whether to approve
a Postal Service proposal to discontinue or add a product,
Congress directed the Commission to scrutinize the availability
of the product in the private sector, the views of those who use
the product, and the likely impact on small businesses. Id.
§ 3642(b)(3)(A)-(C). Before accepting the Postal Service’s
proposal at issue here to discontinue RRM service, the
Commission considered evidence that mailers could obtain
similar service through private shipping companies. It
concluded that small businesses would not be inconvenienced
by the change. It studied and credited the Postal Service’s
evidence and arguments that the Postal Service would be able
to offer “improved features” to its customers if allowed to
discontinue the RRM service. See Order No. 2322, at 12-13.

Commission review under Section 3642 assimilates the
concerns about abuse of monopoly power that the Commission
contends justified its resort to Section 3622. Review under
Section 3642 ensures that no product is discontinued unless
doing so furthers the efficiency and innovation goals of the Act,
and requires the Commission to consider availability in the
private sector and any impact on mailers and small businesses.
The parties acknowledged that a change like the one at issue
here, discontinuing a product that a rapidly dwindling number
of customers want, might still cause some residual number of
customers to resort to a higher priced alternative. The
Commission scrutinized the record the Postal Service had
 16
developed on that issue in its consideration of the Section 3642
factors. The anticipation that some RRM customers would
resort to Certified Mail with Return Receipt (postcard option)
was, the Postal Service submitted, a very limited and
acceptable potential downside in this case, outweighed by the
streamlining and efficiency benefits of RRM discontinuation.
The Commission agreed, specifically concluding that the
“declining volume and revenue” from the RRM service
“outweighs” any “potential harm” current customers might
face, including the acknowledged possibility that some might
then choose a higher-priced delivery confirmation service.
Order No. 2322, at 13-15. If the Postal Service had, instead,
proposed a product list change that would have materially
harmed mailers or small businesses by, for example, abusing
the Postal Service’s market power through camouflaging a
monopolistic rate increase as a product addition or deletion, the
Commission would have been fully empowered—indeed,
required—under Section 3642 to reject that proposal. That is,
review under Section 3642 adequately and appropriately
addresses whether a proposed product change would abuse the
Postal Service’s market power.

The Commission nonetheless contends that, on top of the
Section 3642 process, product discontinuation should also be
subject to the Section 3622 review process for changes to prices
of retained products. Ceasing RRM service “deletes” the rate
cell for that service, the Commission asserts, thereby changing
RRM service’s effective rate to the higher rate charged for
Certified Mail with Return Receipt. That argument collapses
important distinctions in the statutory scheme. Both formally
and conceptually, the Act treats a Postal Service proposal to
change its lists of products distinctly from how it treats a Postal
Service request to change the prices at which its products are
offered from year to year. Compare 39 U.S.C. § 3642, with id.
§ 3622.
 17
The text of the Act reflects the distinction Congress made.
The object of Section 3622 is explicit: It applies only to
changes in “rates,” which the Act defines as “fees for postal
services.” 39 U.S.C. § 102(7). The object of Section 3642—
“postal service[s]”—in turn, is quite broad and varied, defined
as “delivery of letters, printed matter, or mailable packages,
including . . . functions ancillary thereto.” Id. § 102(5). The
distinction between “rates” and “postal services” is central to
the text and regulatory logic of the Act. In reading its own
authority to closely control changes in “rates,” i.e. “fees for
postal services,” to apply to changes in the Postal Service’s
chosen menu of “postal services” themselves, the Commission
elides a key distinction in the statute.

By preventing the Postal Service from raising product
prices faster than the rate of inflation, the rate cap of Section
3622, like the Section 3642 analysis, prevents the Postal
Service from “improperly leverag[ing] its monopoly powers
over” market-dominant products. USPS I, 785 F.3d at 744.
But Section 3622 operates in a more mathematical and focused
way than Section 3642. Section 3622’s formulaic approach is
appropriate to calculation of permissible incremental changes
to rates for continuing products. It is inapposite to the question
whether the Postal Service may lawfully discontinue an
outdated product or offer a new one.

The relatively lean and expedited character of the process
by which the Commission reviews compliance with the rate
cap, in contrast to the Commission’s broader and more
extended review of changes to the menu of offerings, further
confirms each process’s distinct role. Section 3622 limits only
the magnitude by which the Postal Service can raise or lower
prices each year. 39 U.S.C. § 3622(d); USPS II, slip op. at 4.
It operates by formula to control how steeply the Postal Service
may raise rates for those products it continuously offers: It
 18
limits “annual” rate changes, envisioning “regular” increases
that do not abuse the Postal Service’s market dominance, and
that meet the public’s need for “predict[ability].” S. Rep. No.
108-318, at 42 (2004). As the Commission itself has explained,
“[t]he limited focus of [rate-cap] review allows the
Commission to typically resolve these cases on an accelerated
45-day schedule.” Order 3670, at 10. By contrast, “significant
classification changes, such as a Postal Service proposal to
remove a product . . . , exceed the scope of [a rate change]
proceeding because they require more careful consideration
than an expedited price adjustment review can provide.” Id.
The Postal Service here requested to discontinue the RRM
service; the multi-faceted review Section 3642 requires of
changes to the list of market-dominant products, with
prominent consideration of customers’ interests and the Act’s
goals of innovation and efficiency, is the process Congress
designed for the Commission’s review of such a request.

The Commission’s own subsequent actions lend support
to our statutory reading. The Commission had never before
subjected product discontinuation to the rate cap and, even after
doing so in this case, the Commission went on to clarify in a
different case that a service discontinuation proposal did not
belong on the expedited “annual rate docket.” Id. Among a
group of proposed changes to both services and rates, the Postal
Service had proposed to discontinue the Collect on Delivery
service, in which mailers can send articles at no cost by having
the Postal Service collect payment for both the article and
shipping cost from the addressee at the point of delivery. Id. at
9. The Postal Service would replace that discontinued service
with one called Collect on Delivery Hold for Pickup, in which
the addressee picks up and pays for the parcel at a Post Office.
Id. The Commission there correctly recognized that, as “a
proposal to remove a product . . . or to make a material change”
to a product definition, the matter “require[d] more careful
 19
consideration than an expedited price adjustment review [under
Section 3622] can provide.” Id. at 10. The Commission then
required the Postal Service to raise the proposal as a product
discontinuation matter in a proceeding for review under
Section 3642. Id. at 11.

The Commission raises one more defense of its statutory
authority. It notes that a Commission rule says the Postal
Service must explain why any change to the list of market-
dominant products is “not inconsistent with” Section 3622(d),
which includes the statutory rate cap. See 39 C.F.R. §
3020.32(b). According to the Commission, that regulatory
cross-reference means that discontinued products are subject to
the rate cap. Alternatively, however, that regulation confirms
that the Commission has an opportunity to consider prices as
part of its product-offerings analysis under Section 3642,
obviating the need for a formal Section 3622 inquiry on top of
Section 3642 review. In any event, the Commission cannot use
its own regulations to expand its statutory authority. Again,
“[t]he Commission’s reliance on its regulation plainly cannot
justify its giving the statutory ‘changes in rates’ a meaning
outside the range of genuine ambiguity.” USPS II, slip op. at
12.

By applying the rate cap to the proposed discontinuation
of RRM service, the Commission undermines the
congressional design wherein the Postal Service bears primary
responsibility and has substantial flexibility to manage its lists
of offerings. Grafting Section 3622 review to the back of the
requisite Section 3642 process places a major and unwarranted
obstacle in the way of the Postal Service’s prerogative. The
orders under review made the proposed innovation
impracticable, effectively freezing the Postal Service’s
portfolio of product offerings—a result plainly not
contemplated by the Act.
 20
B.

The statutory flaw in the Commission’s analysis is
underscored by the Commission’s awkward and unsuccessful
efforts to implement its novel approach. The Commission has
“fail[ed] to articulate a comprehensible standard” for the
circumstances in which it believes an amendment to a Postal
Service product list triggers the rate cap. USPS I, 785 F.3d at
753.

The Commission first attempts to liken discontinuation of
a product to deletion of a rate cell, which it then claims
authority to treat as a change in rate under its barcode orders,
Nos. 1890 and 3047. See Order 2322, at 9. One evident
problem with that argument is that we have rejected the notion
that “deletion of a rate cell” meaningfully equates to a rate
change. See USPS II, slip op. at 11. Even had we accepted that
argument in the context of preparation requirements for
barcoded bulk mail, however, there are further difficulties here.

While the Commission casually assumes that mailers who
purchased the RRM service in the past did so in order to obtain
a postcard receipt, it offers no evidentiary basis or rational
supporting account. The Commission has not explained why
Certified Mail (with Return Receipt), rather than Signature
Confirmation, is the choice mailers would make. In fact, the
great majority of mailers who previously purchased the RRM
service have in recent years switched to the electronic
Signature Confirmation option. The Commission’s prediction
is not only unexplained—the precipitous decline in RRM use
suggests it is also wrong. See RRM Discontinuation Request,
Attachment B. at 2; Pet’r’s Br. at 10-11. Cf. USPS II, slip op.
at 10.

The Commission’s own regulations also expressly belie its
contention that all rate cell deletions automatically have rate
 21
effects. Even were we to assume that deletion of a rate cell
identified a “change in rates” that, at least as a formal matter,
must be reviewed for rate cap implications, the mere call for
such review does not mean that any rate cap effect will be
found. Under the Commission’s own regulations, deletion of a
rate cell might simply call for zeroing out that cell. See 39
C.F.R. § 3010.23(d)(4); see also Order No. 3670, at 11 n.25.
Which treatment applies depends on where the Commission
counts the volume of product usage that it previously counted
in the deleted cell, which depends on whether an “alternate rate
cell” is available. If it is, the volume from the deleted rate cell
in the prior year is ordinarily applied to the “alternate rate cell”
in the current year at the new price. 39 C.F.R. § 3010.23(d)(3).
But where an alternate rate cell “is not available, the Postal
Service should adjust the billing determinants associated with
the rate cell to zero,” 39 C.F.R. § 3010.23(d)(4), in other words,
zero out both the volume and price of the product associated
with the deleted cell and neither debit nor credit it against the
Postal Service’s rate cap in the following year. See Order No.
2322, at 9-10. Pointing out that a rate cell is “deleted” merely
raises the question whether an alternate rate cell is available—
and what that alternate would be.

The Commission makes little effort to define the concept
of an “alternate rate cell.” In the challenged order, it explained
only:

Certified Mail (with Return Receipt) is the only
alternative option with ‘basic characteristics’ that
closely mirror RRM Service’s basic characteristics.
This makes it the only reasonable substitute.
Specifically, the key characteristic of RRM Service is
the physical mailing of a receipt postcard . . . . Should
the removal of RRM Service occur, customers
seeking that basic characteristic would need to
 22
purchase Certified Mail (with Return Receipt), paying
higher rates to receive a physical mailing of a receipt
postcard than they currently pay for RRM Service.

Id. at 9. That conclusory analysis is inadequate.

In selecting Certified Mail with Return Receipt (postcard)
as the “alternate rate cell” providing equivalent service to
RRM, the Commission assumes that a physical postcard is the
key characteristic of the RRM service without explaining why.
It asserts that mailers will pay a higher rate for a physical
postcard (among a cluster of other services provided by
Certified Mail) in the wake of RRM service’s discontinuation.
That position lacks practical and economic logic. Consider an
illustrative analogy: Were a restaurant to eliminate French
fries from the list of side orders available on its dinner menu
but still serve them as part of a “steak frites” entrée, we would
not ordinarily describe the restaurant as having raised its price
for an order of French fries but, more naturally, that it
discontinued that option. Needless to say, not everyone who
used to order fries could fairly be expected to switch to the
steak frites entrée. Likewise, the availability of postcard
confirmation through Certified Mail does not mean the
alternative to RRM service is Certified Mail with postcard
Return Receipt. The two services share a common feature, but
that feature does not make Certified Mail with Return Receipt
the higher priced “alternate” to RRM service. The
Commission’s difficulties in identifying the new rate for
discontinued RRM service further confirm that the
Commission’s untenable position conflicts with the statutory
design.

***

For the first time, the Commission in the orders under
review proposed to treat discontinuation of a product under
 23
Section 3642 as a rate change subject to Section 3622’s rate cap
for market-dominant products. The Commission lacks
statutory authority to conduct such overlapping review,
subjecting discontinuation of a product to multi-factored
review under Section 3642 and simultaneously treating it as a
rate change under Section 3622. We accordingly grant the
petition for review and vacate Orders No. 2322 and 3597.

So Ordered.