Postal Accountability and Enhancement Act: (Old H.R. 4970 from the last Congress)

A Section-By-Section Analysis

TITLE I -- DEFINITIONS; POSTAL SERVICES
Sec. 101 Definitions

Section 101 of the bill proposes, for the first time, a clear definition of "postal services." A "postal service" is defined as "the physical delivery of letters, printed matter, or packages weighing up to 70 pounds, including physical acceptance, collection, sorting, transportation, and other services ancillary thereto." The definition of "postal service" is used to clarify the jurisdiction of the Postal Rate Commission (renamed in the bill the "Postal Regulatory Commission") and the scope of commercial activities which the Postal Service is authorized to pursue.

Section 101 also defines the term "product" to mean "any postal service with a distinct cost or market characteristic." The term "product" thus encompasses all classes, subclasses, and rate categories that comprise the mail classification system.

Section 101 further defines "market-dominant product" to refer to "a product subject to subchapter I of chapter 36" and "competitive product" to refer to "a product subject to subchapter II of chapter 36." Section 101 defines "Consumer Price Index" to mean the Consumer Price Index for All Urban Consumers published monthly by the Bureau of Labor Statistics of the Department of Labor. Finally, section 101 defines "year" to refer to a fiscal year for most purposes of rate regulation.

Sec. 102 Postal Services

Section 102 declares that the Postal Service's authority to offer products and services is limited to "postal services." Current law is unclear in this respect. If the Service unlawfully offers a nonpostal service or product, the Postal Regulatory Commission may order that the Postal Service cease providing the product under the complaint procedures outlined in section 202 of the bill. Whether or not the business model of the Postal Service should be modified to allow it to engage in nonpostal products or services, and under what circumstances, is an issue committed to consideration of the National Commission on the Future of the Postal Service established in section 701 of the bill.

TITLE II - MODERN RATE REGULATION

In the new regulatory regime proposed in the bill, the classes of mail and services are classified as either Market Dominant or Competitive products. In general, the bill requires the Postal Regulatory Commission to design, within 24 months, a new system of rate regulation for Market Dominant products that continues in effect the rate making factors found in current law while providing increased flexibility, predictability, incentives for efficiency, and long term financial stability. The Commission is required to ensure that price increases of products in the Market Dominant category do not exceed the rise in the Consumer Price Index (CPI) except under extraordinary circumstances. With respect to Competitive products, the Postal Service is given, 180 days after enactment, pricing flexibility comparable to that exercised by private competitors. To prevent abuse, the new regulatory regime proposed in the bill substantially enhances the authority of the Commission to define, audit, and remedy cross subsidization of Competitive products from revenues earned from Market Dominant products. In addition, title III provides for a level playing field in respect to Competitive products in several important respects.

Sec. 201 Provisions relating to market-dominant products

Section 201 of the bill establishes a new, modern system for regulation of Market Dominant products, which account for about 85 percent of current Postal Service revenues. In current title 39, chapter 36 deals with regulation of postal rates. The bill redesignates subchapter I of chapter 36 (establishing the Postal Rate Commission) as chapter 5 (see section 501, below). Section 201 revises subchapter II, which currently sets out the process of rate regulation, and redesignates it as subchapter I. As amended, subchapter I relates only to regulation of Market Dominant products. Section 201 adds two new provisions to title 39, sections 3621 and 3622, as follows.

Sec. 3621 Applicability; definitions

Section 3621 lists certain postal products to be regulated as Market Dominant products immediately after enactment: First-Class mail, Periodical mail, Standard mail except for bulk Parcel Post, media mail, library mail, and bound printed matter. This list specifically includes "Aunt Minnie" or "individual consumer" mail, that is, domestic and international single piece First-Class letters and cards and domestic and international single piece parcels. Special services (e.g., post office boxes in rural areas, certificates of mailing and delivery, etc.) are also regarded as Market Dominant products. After enactment, the list of Market Dominant products may be revised by the Commission. See new section 3642 set out in section 203 of the bill.

Sec. 3622 Modern rate regulation

Subsection 36222(a) requires the Postal Regulatory Commission to establish within 24 months a new system for regulating postage rates for Market Dominant products.

Subsection 3622(b) provides that the objectives of the new system shall be:

1. Maximize incentives to reduce costs and increase efficiency;

2. Create predictability and stability in rates;

3. Maintain high quality service standards;

4. Allow the Postal Service pricing flexibility;

5. Assure adequate revenues, including retained earnings, to maintain financial stability; and

6. Reduce the administrative burden of the ratemaking process.

Subsection 3622(c) requires that, in establishing the new system, the Commission shall take into account the rate and classification factors found in sections 3622 and 3623 of current law.

Subsection 3622(d) declares that the new system may include price caps, revenue targets, cost-of-service regulation, or such other forms of regulation as the Commission considers appropriate.

Subsection 3622(e) requires that the system established by the Postal Regulatory Commission must ensure provide that the average rate for any subclass does not increase by more than the annual increase in the Consumer Price Index unless the Commission has determined, after notice and hearing, that such an increase is "reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States."

The new system will ensure fairness because the Postal Service cannot derive from any one subclass a percentage increase in revenue greater than CPI while at the same time encouraging the Postal Service to improve efficiency and control costs. In contrast, the current ratesetting process provides little or no incentive for the Postal Service to control its costs because all costs are ultimately passed through to the consumer regardless of how efficiently or inefficiently the Postal Service operates.

Sec. 202 Provisions relating to competitive products

Section 202 of the bill adds a new subchapter II to chapter 36 of title 39. Subchapter II establishes a flexible system for regulation of Competitive products, which currently account for about 15 percent of current Postal Service revenues. Section 202 adds three new sections to title 39, as follows.

Sec. 3631. Applicability; definitions and updates

Section 3621 lists the present mail classes and products to be included within the Competitive category immediately after enactment. This list includes Priority mail, Express mail, mailgrams, international mail, and parcel post. After enactment, the list of Competitive products may be revised by the Commission. See new section 3642 set out in section 203 of the bill.

Sec. 3632. Action of the Governors

Section 3622 provides that the Governors of the Postal Service may establish rates and classes for all products in the Competitive category of mail after giving notice in the Federal Register. The Governors' new pricing authority for competitive products does not take effect until the Postal Regulatory Commission promulgates regulations under section 3633.

Sec. 3633. Provisions applicable to rates for competitive products

Section 3633 requires the Postal Regulatory Commission to promulgate regulations within 180 days of enactment prohibiting subsidization of competitive products by market dominant products. The Commission shall ensure that each competitive product covers its attributable costs, and in addition ensure that competitive products collectively make a "reasonable contribution" to the institutional costs of the Postal Service.

Sec. 203 Provisions relating to experimental and new products

Section 203 of the bill adds a new subchapter III to chapter 36 of title 39. Subchapter III provides rules for market tests of experimental products and for shifting products between the Market Dominant and Competitive categories. The new subchapter III replaces, and thus repeals, the current subchapter III dealing with temporary rates and classes. Section 203 adds two new provisions to title 39 as follows.

Sec. 3641. Market tests of experimental products

Section 3641 authorizes the Postal Service to conduct limited market tests which are exempt from most specific pricing requirements. Market tests under this section are restricted to periods which last no more than two years (which may be increased to three years by the Commission ) and to products which earn less than $10 million annually (which may be raised to $50 million by Commission). Regardless of duration or size, a market test may not be conducted under this section if it will "create an unfair or otherwise inappropriate competitive advantage for the Postal Service or any mailer, particularly in regard to small business concerns." Under this section, Commission retains substantial oversight authority over market tests. Under section 3652, the Postal Service is obliged to to provide summary information in annual reports to the Postal Regulatory Commission.

Sec. 3642. New products and transfers of products between the market-dominant and competitive categories of mail.

Section 3642 authorizes the Postal Regulatory Commission to classify new products as falling in either the Market Dominant category or Competitive category and to transfer existing products between the two categories. Subsection (b) adopts criteria for the two categories that reflect the Federal Communications Commission's (FCC) approach to defining "dominant" carriers for the purpose of regulation. Paragraph (b)(1) provides that: "The market-dominant category of products shall consist of each product in the sale of which the Postal Service exercises sufficient market power that it can effectively set the price of such product substantially above costs, raise prices significantly, decrease quality, or decrease output, without risk of losing business to other firms offering similar products. The competitive category of products shall embrace all postal products not in the market-dominant category." Products covered by the postal monopoly may not be transferred to the Competitive category.

Subsection 3642(c) provides that the Postal Regulatory Commission must ensure that any change in the lists of products in the Market Dominant and Competitive categories is published in the Federal Register. Subsection (e) provides that the Postal Service may not offer any product involving the physical delivery of letters, printed matter, or packages until it is categorized as falling in either the Market Dominant or Competitive Category.

Sec. 204 Reporting requirements and related provisions

Section 204 of the bill adds a new subchapter IV to chapter 36 of title 39. In general, subchapter IV provides for annual audits of Postal Service operations by the Postal Regulatory Commission to ensure compliance with the ratemaking criteria of the act.

Sec. 3651 Annual reports by the Commission

Section 3651 requires that the Postal Regulatory Commission provide an annual report to the President and the Congress concerning its operations, including an assessment of whether its regulations for Market Dominant and Competitive products are meeting legislative policy. As part of this report, the Commission is directed to prepare an estimate of public service costs borne by the Postal Service including universal service costs, revenue-forgone costs, and other costs (e.g., law enforcement).

Sec. 3652 Annual reports to the Commission

Subsection 3652(a) requires that the Postal Service to submit information to the Postal Regulatory Commission, no later than three months after the last day of each fiscal year, which demonstrates that the rates in effect for all Market Dominant and Competitive products during the year are in compliance with the requirements of this title. In addition, information must be provided on the quality of services for each product in the Market Dominant category including volume and market information, measures of speed and reliability of postal services, and customer satisfaction. In this manner, the bill mandates that the Postal Service must develop measures for and report on "the speed and reliability of postal services" in all classes of mail in the Market Dominant category. The Postal Service Inspector General is required to audit the report prepared for Postal Regulatory Commission review.

Subsection 3652(b) requires annual reporting on the extent of cost savings reflected in worksharing discounts.

Subsection 3652(c) provides that the Service must provide such data as the Commission requires for large scale market tests but may provide summary data on the required costs, revenues, and quality of service for market tests for which the Commission has not required specific information.

Subsection 3652(d) states that the Commission will have access to all the working papers and supporting materials of the Postal Service and the Inspector General in connection with the required reports.

Subsection 3652(e) provides that the Commission, in developing regulations prescribing the content and form of the required annual reports, shall consider the need to provide the public with adequate information to justify the lawfulness of rates charged, the need to avoid unnecessary or unwarranted administrative effort or expense on the part of the Postal Service, and the need to protect the confidentiality of commercially sensitive information. As a result, the section authorizes the Commission to specify what information will be provided as either (1) public reports or (2) non-public annexes and supporting papers, in order to accommodate the confidentiality protections detailed below. The subsection also contains a provision for the Commission, on its own motion or on request from an interested party, to initiate a proceeding to improve the quality, accuracy, or completeness of postal service data required by the annual audit.

Subsection 3652(f) provides that the Postal Service may to obtain confidential treatment for commercially sensitive information that is protected from disclosure under current law, in accordance with provisions outlined in new section 504.See section 502 of the bill.

Subsection 3652(g) requires the Postal Service to provide the Commission, as part of information to be examined in the annual audit, specific reports that are submitted to Congress, including the comprehensive statement required under section 2401 and the performance plan and program reports required under the Government Performance and Results Act. The Postal Service is also be required to provide reports detailing the operations of the Competitive Products Fund. See section 301 of the bill.

Sec. 3653 Annual determination of compliance

Section 3653 provides that, after receiving annual reports from the Postal Service in accordance with section 3652, the Postal Regulatory Commission shall provide an opportunity for public comment. The Commission will then, within 90 days, make a written determination whether any rates and fees were not in compliance with the law or whether performance goals or any service standards were not met. If any noncompliance is found, the Commission is required to take appropriate action under the revised complaint procedure, section 3662 (section 205 of the bill, below). On the other hand, a determination of compliance creates a rebuttable presumption of compliance in any complaint proceeding on the specific matters reviewed in the annual audit.

Sec. 205 Complaints; appellate review and enforcement

Section 205 of the bill revises the complaint and appellate review provisions set out in subchapter V of chapter 36, title 39 (as redesignated by the bill). In general, the bill strengthens the authority of the Postal Regulatory Commission to act on complaint in lieu of the current reliance on Commission review of postage rates prior to implementation. Section 205 repeals current sections 3662 (rate and service complaints) and 3663 (annual report on international services) and adds three sections in title 39 as follows.

Sec. 3662 Rate and Service Complaints

Section 3662 provides the Postal Regulatory Commission with enhanced authority to respond to complaints of pricing, service, or other actions by the Postal Service in violation of law. As revised, this section would require the Commission to investigate or dismiss complaints within 90 days. In subsection 3662(c), the amendment gives the Commission broad authority to correct violations by ordering the Postal Service to take whatever steps the Commission considers appropriate. For instance, the Commission may order the Postal Service to adjust the rates of Competitive products to lawful levels if they are set below attributable costs (the Commission has no such authority under current law). In cases of deliberate noncompliance with law, the Commission is authorized to levy fines based on the seriousness, nature, circumstances, and extent of the noncompliance. Fines resulting from unlawful provision of Competitive products must be paid out of the Competitive Products Fund, and all fines are paid into the general Treasury fund.

Sec. 3663 Appellate Review

Section 3663 provides for appeals of any order or decision of the Postal Regulatory Commission to the United States Court of Appeals for the District of Columbia Circuit in accordance with chapter 706 of title 5 and chapter 158 of title 28.

Sec. 3664 Enforcement of orders

Section 3664 gives any United States District Court jurisdiction to enforce orders of the Postal Regulatory Commission.

Sec. 206 Clerical amendment

Section 206 of the bill revises the analysis of chapter 36, title 39, in accordance with the changes made by the bill.

TITLE III - PROVISIONS RELATING TO FAIR COMPETITION

Sec. 301 Postal Service Competitive Products Fund

Section 301 of the bill adds a new section 2011 to title 39. Section 2011 establishes an off-budget fund within the Treasury for revenues and expenditures associated with competitive products. The "Competitive Products Fund" is in addition to the current Postal Service Fund. The intent of this section is to level the playing field for the Postal Service and its competitors in the Competitive product market by requiring the Postal Service to keep separate financial accounts for Market Dominant and Competitive products. Separation of accounts also protects the interests of postal consumers in the Market Dominant category and taxpayers.

Section 2011 essentially permits the Postal Service to manage the Competitive Products Fund in its discretion but prohibits the Postal Service from borrowing funds from Treasury or borrowing from private capital markets by pledging the full faith and credit of the United States. The new fund can borrow money to support competitive products by pledging the assets of the fund and its revenues and receipts. The Postal Service may invest money from the new fund in accordance with rules which the Secretary of Treasury shall prescribe (by not later than 18 months after the date of enactment).

Subsection 2011(h) requires the Postal Service develop rules to identify and value the assets, costs, and revenues associated with Competitive products. The Postal Service's recommendations must be submitted to by the Postal Regulatory Commission for review and approval after a public hearing. The Commission is authorized to update the rules as necessary.

The Postal Service must report to the Postal Regulatory Commission on the operation of the Competitive Products Fund periodically, as may be required by the Commission. In addition, the Postal Service must prepare an annual report for the Secretary of the Treasury concerning the operation of this Fund. This report shall address such matters as risk limitations, reserve balances, allocation or distribution of moneys, liquidity requirements, and measures to safeguard against losses. A copy of the report must also be provided to the Commission as part of the required annual reports.

Sec. 302 Assumed Federal income tax on competitive products income

Section 302 of the bill adds a new section 3634 to title 39. Section 3634 requires the Postal Service each year to compute an assumed Federal income tax on income from Competitive products and to transfer from the Competitive Products Fund to the Postal Service Fund the amount of that assumed tax.

Sec. 303 Unfair competition prohibited

Section 303 of the bill adds a new section 404a to title 39. Section 404a prohibits the Postal Service from (1) establishing rules or regulations which preclude competition or give the Postal Service an unfair competitive advantage; (2) compelling disclosure, transfer, or licensing of intellectual property; or (3) offering any product or service that makes use of information obtained from a person that provides or seeks to provide a product to the Postal Service (unless the person has consented to such use). The Postal Regulatory Commission is required to prescribe regulations to carry out the purposes of this section, and the prohibitions are enforced through the Commission's strengthened complaint process and remedies, which include ordering rescission of any regulation.

Sec. 304 Suits by and against the Postal Service

Section 304 of the bill amends section 409 of title 39 to make the Postal Service more amenable to other laws regulating the conduct of commercial activities.

First, the amendment subjects all Postal Service activities to federal laws prohibiting the conduct of business in a fraudulent manner (the Lanham Act).

Second, the amendment subjects all Postal Service activities outside the postal monopoly to federal antitrust laws and unfair competition prohibitions and eliminates sovereign immunity protection from suits in Federal Court for violations of Federal law. For Market Dominant products, which are closely regulated by the Postal Regulatory Commission, the amended section 409 provides injunctive relief only in case of violation of the antitrust laws.

Third, the amendment would make the Postal Service competitive products fund a "person" for purposes of the Federal bankruptcy laws.

Fourth, the amendment would require the Postal Service to consider local zoning, planning, or land use regulations and building codes when constructing new buildings.

As amended, section 409 further requires the Postal Service to represent itself in most legal proceedings permitted by the amendment as well as in cases involving administrative subpoenas issued by the Postal Regulatory Commission and appeals of decisions by the Commission or the Governors (a right recognized by the DC Circuit in Mackie v. Bush (1993)). The amendment requires that judgments arising out of violations of law involving competitive products must be paid from revenues from competitive products.

Sec. 305 International postal arrangements

Section 305 of the bill replaces section 407 of title 39. Section 407 deals with international postal arrangements.

New subsection 407(a) establishes a policy framework for future international postal agreements that stresses separation of regulatory and operational functions.

Subsection 407(b) vests the Secretary of State with authority to lead U.S. delegations in intergovernmental meetings devoted to postal matters. The Secretary is barred from concluding agreements that give preference to any entity, either public or private, including the Postal Service in its provision of competitive products. The subsection provides the Secretary in carrying out his responsibilities under this section shall maintain appropriate liaison with other federal agencies, with Postal Service, and with affected members of the public. The subsection further declares that the Secretary of State shall establish an advisory committee, under the Federal Advisory Committee Act, to help perform the necessary coordination and liaison with entities in the public and private sectors as it develops U.S. foreign policy related to international postal services and other international delivery services.

Subsection 407(c) provides that, before concluding an international agreement that establishes a rate or classification, the Secretary shall request a decision from the Postal Regulatory Commission to determine whether the proposed rate or classification is consistent with the Commission regulations regulating Market Dominant products. The Secretary must ensure that international agreements are consistent with the Commission's decision except to the extent that modification may be required by considerations of foreign policy or national security.

Subsection 407(d) authorizes the Postal Service to enter into agreements or contracts as it deems appropriate for international postal services without the consent of the Secretary as long as any agreements with agencies or subsidiaries of foreign governments are contractual in nature and do not purport to be international law. The Postal Service must notify the Secretary and the Commission of agreements with agencies or subsidiaries of foreign governments.

In light of studies conducted by the General Accounting Office and the U.S. Customs Service, subsection 407(e) requires the Customs Service to afford non-discriminatory access to U.S. customs procedures for both the Postal Service's Competitive products and similar products of U.S.-owned private carriers. Since some foreign governments currently limit access to simplified customs procedures to government post offices¾thus discriminating between the Postal Service and U.S. private carriers¾the subsection requires the Secretary of State "to the maximum practicable extent" to negotiate with other countries to make available customs procedures that do not discriminate between the Postal Service and U.S. private carriers while fully meeting the needs of all types of American shippers.

Sec. 306 Change-of-address order involving a commercial mail receiving agency

Section 306 of the bill adds a new section 3686 to title 39. Section 3686 requires the Postal Service to forward, in the same manner as all other postal customers, the mail of addressees who have entered into agreements with Commercial Mail Receiving Agencies (CMRAs) to accept mail on behalf of the addressee, such as private post office box rental companies, universities, and hospitals. Presently, CMRAs must add postage to an item that requires forwarding and resubmit it to the Postal Service for further processing.

Sec. 307 Exception for competitive products

Section 307 of the bill amends section 403(c), title 39, to provide that for Competitive products only, the Postal Service may provide discounts without obligation for equal access by similar mailers. The amendment reflects the view that, in pricing Competitive products, the Postal Service should be able to use the same pricing strategies widely used by its competitors in the marketplace. Unlike private competitors, however, the Postal Service can in no case violate the cost coverage requirements established by the Postal Regulatory Commission for competitive products individually and collectively.

TITLE IV - GENERAL PROVISIONS

Sec. 401 Qualification requirements for Governors

Section 401 of the bill amends section 202 of title 39. Section 202 establishes the Board of Governors and provides that the nine Governors shall represent the public interest generally. The amendment adds a requirement that at least four Governors shall be selected by the President based solely on their demonstrated ability in managing organizations or corporations, in either the public or the private sector, of substantial size (employing at least 50,000 employees). The amendment requires the President to consult with the Speaker and minority leader of the House and the majority and minority leaders of the Senate in selecting individuals to nominate to the Board.

The amendment also a provision that one of the nine Governors must be chosen from among persons unanimously nominated by all labor unions recognized by law as collective-bargaining representatives for employees of the Postal Service in one or more bargaining units. The term of office for this Governor is three years (instead of nine).

Section 401 recognizes the bill vests enhanced powers and responsibilities in the Governors. A majority of current and former Board members have indicated support for well-defined qualification requirements for Board appointments. The qualification provisions in the bill are modeled on the appointment criteria for the Amtrak Board of Governors. Those Governors currently serving or nominated before enactment are not effected by this change.

Sec. 402 Obligations

Section 402 of the bill amends section 2005 of title 39 to increase the limits on borrowing by the Postal Service. As amended, section 2005 would provide that the aggregate amount of obligations outstanding at any one time, in both the Postal Service Fund and the Competitive Products Fund cannot exceed $25 billion (increased from $15 billion in current law). The Postal Service Fund's $2 billion annual cap on borrowing for capital investments is increased to $3 billion total for both funds.

Sec. 403 Private carriage of letters

Section 405 of the bill amends section 601 of title 39 to provide limited additional statutory exemptions to the postal monopoly. In summary, this section provides that a letter may be carried outside the mail under three new circumstances: (1) when the amount paid to a private carrier is at least 6 times the rate then currently charged for the first ounce of a single-piece first-class letter, (2) when the letter weighs at least 12 and a half ounces, and (3) when private carriage is within the scope of current Postal Service regulations that purport to suspend the operation of current law.

The proposed price and weight limits for the postal monopoly, 6 times the first-class stamp price and 12 and a half ounces, remain significantly more protective of the Postal Service than postal monopoly limits enacted in other industrialized nations that have concluded smaller monopolies will promote greater efficiency without jeopardizing universal service. For example, in 1997, the European Union limited European postal monopolies to 5 times the stamp price or 12 and a half ounces. This year, the European Union adopted a second postal directive that will reduce the limits on postal monopoly laws to 3 times the stamp price or 3 and a half ounces in 2003. Canada's postal monopoly has been limited to 3 times the stamp price since 1981; Australia's monopoly is limited to 4 times the stamp price or 8 ounces. Indeed, several countries have abolished their postal monopolies or are in the process of doing so, including Germany, Sweden, New Zealand, and the United Kingdom. The Department of Justice supports limiting the scope of the statutory monopoly with a bright-line test for identifying products falling within it. The Department has also noted that the Postal Service's entry into competitive markets suggests that economic theory does not justify the postal monopoly as it exists under current law. The General Accounting Office has testified to Congress that the "impact of reducing the scope of the letter mail monopoly to $2 would not significantly affect the Postal Service's ability to provide affordable universal service because little of the first-class mail volumes that are currently protected by the postal monopoly would become subject to competition…. Available data indicate that less than 3 percent of the first-class mail revenues are currently derived from first-class mail that falls outside the proposed reduced limit of $2." By setting the limit at 6 times the first-class stamp price, the amended section 601 provides that the price limit on the postal monopoly will rise as that the stamp price increases.

As amended, section 601 also statutorily codifies certain exemptions to the postal monopoly that have been administratively adopted by the Postal Service and widely used by private carriers and the public even though they are based on a questionable interpretation of current law. Entities in both the government and the private sector have testified that the Postal Service has misinterpreted the suspension power found in section 601(b) of current law. Since 1974, the Postal Service has, under color of section 601(b), issued regulations that, in effect, suspend the postal monopoly. Subsection 601(b), however, is derived from section 7 of an 1864 postal act. This provision was originally intended to authorize the Postmaster General to suspend the exception to the postal monopoly now found in section 601(a), which allows private carriage of letters if postage is paid by applying and canceling postage stamps. There is no evidence that Congress intended to grant the Postal Service authority to suspend the postal monopoly itself. The proposed amendment would repeal the Postal Service's authority to suspend the postal monopoly exception for stamped letters¾an antiquated and never used authority¾and to codify the exemptions to the postal monopoly that the Postal Service has adopted to date in apparent misinterpretation of the suspension provision. The intent of this provision to continue to allow private carriage under those circumstances in which private carriage is purportedly permitted by current Postal Service "suspensions" of the monopoly but not to continue provisions in the Postal Service regulations that purport to condition or limit use of such "suspensions" (e.g., a requirement that customers of private carriers must permit otherwise unauthorized inspections by postal inspectors).

The Postal Regulatory Commission is authorized to adopt regulations necessary to carry out the exceptions to the postal monopoly set out in section 601 as amended. This amendment does not take effect until the Postal Regulatory Commission promulgates regulations for the competitive pricing system under section 3633.

Sec. 404 Rulemaking authority

Section 404 of the bill amends section 401(2) of title 39 to clarify the rulemaking function of the Postal Service. As amended, section 401(2) authorizes the Postal Service "to adopt, amend, and repeal such rules and regulations, not inconsistent with this title, as may be necessary in the execution of its functions under this title and such other functions as may be assigned to the Postal Service under any provisions of law outside of this title." This amendment is intended to make clear that the Postal Service is not, unless explicitly authorized by Congress, empowered to adopt regulations implementing other parts of the U.S. code, e.g., the criminal laws. This amendment is fully consistent with the legislative history of this provision (which originated in the 1960 codification) and is modeled on the Federal Communications Commission's rulemaking authority, 47 USC 154(i). The amendment recognizes that the rulemaking authority of the Postal Service is effected by its obligations under title 5 and certain other limited provisions of law outside title 39.

Sec. 405 Noninterference with collective bargaining agreements, etc.

Section 405 of the bill addresses two specific issues. First, subsection (a) mandates that nothing in the bill, or amendments made by the bill to current law, can affect any of the rights, privileges, or benefits of postal employees or the labor organizations representing them. Second, subsection (b) clarifies that nothing in the bill will affect free mail as currently provided by law for (1) correspondence of members of the diplomatic corps and consuls of the countries of the Postal Union of Americas and Spain; (2) the blind and the disabled; and (3) mailing of balloting materials under the Uniformed and Overseas Citizens Absentee Voting Act.

Sec. 406 Bonus Authority

Section 406 of the bill adds a new section 3687 to title 39. Section 3687 authorizes the Postal Service to establish one or more bonus programs in furtherance of the objectives of chapter 36. The Postal Regulatory Commission must review any such program prior to implementation and approve any program that it finds "likely to achieve the objectives of this chapter." The section states that bonus payments may exceed the salary cap for postal employees established in section 1003(a) of title 39. For each employee whose compensation exceeds the salary cap by virtue of a bonus awarded under this section, the Postal Service is required to list in its annual comprehensive report the name of the employee, the amount of the bonus, the limitation of the salary cap, and amount by which the cap was exceeded.

TITLE V - ENHANCED REGULATORY COMMISSION

Sec. 501 Reorganization and modification of certain provisions relating to the Postal Regulatory Commission

Section 501 of the bill creates a new chapter 5 in title 39 to establish the Postal Regulatory Commission. Chapter 5 consists of four sections as follows.

Section 501 of title 39 establishes the Postal Regulatory Commission. Section 3601 of current law, establishing the Postal Rate Commission, is repealed.

Section 502 of title 39 sets out the qualifications and terms of office for the five Commissioners. This section provides that "Commissioners shall be chosen solely on the basis of their technical qualifications, professional standing, and demonstrated expertise in economics, accounting, law, or public administration." Section 3602, establishing terms of office for Commissioners of the Postal Rate Commission, is repealed. Commissioners currently serving or nominated before enactment are not affected by this change.

Section 503 of title 39 authorizes of the Commission to issue rules and regulations. Section 503 is a redesignation of current section 3603.

Section 504 of title 39 sets out rules governing the administration of the Commission. Section 504 is a redesignation of current section 3604.

In sum, section 501 of the bill recognizes the Commission's enhanced responsibilities by establishing the Commission in provisions set out in a chapter located part I of title 39, dealing with general matters, rather than, as in current law, provisions set out in a subchapter of chapter 36, dealing with rate regulation.

Sec. 502 Authority for Postal Regulatory Commission to issue subpoenas

Section 502 of the bill amends section 504 of title 39 (i.e., section 3604 of current law as redesignated by section 501 of the bill). As amended, section 504 provides that Commissioners, any law judge appointed by the Commission, and any designated employee of the Commission may administer oaths, examine witnesses, take depositions, and receive evidence. In addition, the Chairman of the Commission, any Commissioner designated by the Chairman, and any law judge appointed by the Commission may subpoena officers, employees, and agents of the Postal Service to require attendance and presentation of testimony and production of documents and to order depositions and responses to written interrogatories solely related to any proceeding conducted by the Commission under this title. Any subpoena requires the written concurrence of a majority of Commissioners then holding office in advance of its issuance. Failure to obey a subpoena may be referred to the United States district court and failure to obey the court is punishable as a contempt of court.

The amendment also provides for the handling of proprietary information requested from the Postal Service by the Commission. As amended, section 504 provides that, if the Postal Service determines requested information is proprietary and so notifies the Commission in writing, the Commission may use the information only for the purpose supplied and must restrict access to the information to Commission officials. The amendment further provides for the possibility of discovery of such information by private parties in proceedings under sections 556 and 557 of title 5 and requires the Commission to adopt rules to protect the confidentiality of such information similar to the rules that govern protective orders issued by the federal courts under the Federal Rules of Civil Procedure.

Sec. 503 Appropriations for the Postal Regulatory Commission

Section 503 of the bill further amends section 504 of title 39 to ensure the financial independence of the Postal Regulatory Commission. Under the amendment, funding for the Commission will be paid out of the Postal Service Fund, as under current law, but the budget of the Commission will no longer be subject to disapproval by the Governors.

Sec. 504 Redesignation of the Postal Regulatory Commission

Section 504 of the bill changes "Postal Rate Commission" to the "Postal Regulatory Commission" in various statutes.

TITLE VI - INSPECTORS GENERAL

Sec. 601 Inspector General of the Postal Regulatory Commission

Section 601 of the bill amends the Inspector General Act of 1978 to provide for an Inspector General for the Postal Regulatory Commission.

Sec. 602 Inspector General of the United States Postal Service to be appointed by the President

Section 602 of the bill amends the Inspector General Act of 1978 to require appointment of the Postal Service's Inspector General by the President with Senate confirmation, in the same manner as the 27 other presidentially appointed Inspectors General at major federal departments and agencies. The current Inspector General would be grandfathered for the remainder of her term.

In addition, this amendment authorizes the Inspector General of the Postal Service to audit or oversee the audit of the Postal Service's financial statements in order to bring the Postal Service in line with the Inspector General Act and meet accountability standards required of other federal agencies, as well as to implement the annual audit reports required under chapter 36 as amended. The independence and objectivity of the Inspector General will reinforce the independence of the Postal Service's outside accountants.

TITLE VII - NATIONAL COMMISSION; EVALUATIONS

Sec. 701 National Commission on the Future of the Postal Service

Section 701 of the bill establishes a National Commission on the Future of the Postal Service (Commission). The proposed Commission is composed of 11 members. The President, the Speaker of the House of Representatives, the majority leader of the Senate, and the minority leaders from the House and the Senate shall each appoint two members of the Commission. The Chairman of the Commission shall be appointed jointly by the President, the Speaker, and the Senate majority leader.

The function of the Commission will be to study and make recommendations on ways to improve the efficiency and long-term viability of the Postal Service. In carrying out this responsibility, the Commission shall study and make recommendations on:

"(1) the appropriate scope and standards for universal postal service;

"(2) how to address the human-capital challenges facing the Postal Service, including how employee-management relations within the Postal Service may be improved;

"(3) how to optimize the postal infrastructure, including the best methods for providing retail services that ensure convenience and access to customers;

"(4) how to ensure the safety and security of the mail and of postal employees;

"(5) how to minimize areas of inefficiency or waste and improve operations involved in the collection, processing, or delivery of mail;

"(6) what business model would best promote an efficient, reliable, and innovative Postal Service that can meet the needs of the Nation and its citizens; and

"(7) other issues that the Commission determines are relevant to ensuring the long-term viability of the Postal Service."

The Commission is specifically charged with examination of the issues raised and options presented for the long term transformation of the Postal Service in recent reports by the Postal Service and the General Accounting Office. Not later than 30 months after enactment of the bill, the Commission shall report its findings to Congress and the President and include any legislative or administrative recommendations.

Sec. 702 Assessments of ratemaking, classification and other provisions

Section 702 of the bill requires the Postal Regulatory Commission to report, in conjunction with the views of the Postal Service, to the President and the Congress, at least every 5 years, on the operation of the amendments made by this bill, with recommendations for any legislative or other measures necessary to improve the effectiveness or efficiency of the nation's postal laws.

Sec. 703 Study on equal application of laws to competitive products

Section 703 of the bill requires the Federal Trade Commission to prepare a study detailing how federal and state laws apply differently to the Postal Service's competitive products and similar products provided by private companies. The Commission is directed to report within one year after enactment and to include recommendations for resolving any identified disparities in legal treatment.

Sec. 704 Greater diversity in Postal Service executive and administrative schedule management positions

Section 704 of the bill directs the Board of Governors to study and report to the President and Congress on the extent of representation by women and minorities in supervisory and management positions within the Postal Service. In addition, the Postal Service is required, as part of its performance evaluations of supervisory and management employees, appropriately to consider meeting of affirmative action goals, achieving equal employment opportunity requirements, and implementing plans to achieve greater workforce diversity.

Sec. 705 Plan for assisting displaced workers

Section 705 of the bill requires the Postal Service to develop and be prepared to implement a plan for offering reemployment assistance to employees displaced by automation or privatization. The plan is to be provided to the Board of Governors and Congress within one year of enactment.

Sec. 706 Contracts with women, minorities and small business

Section 706 of the bill requires the Board of Governors, within one year, to study and report to the President and Congress on the number and value of contracts and subcontracts entered into with women, minorities, and small business.

Sec. 707 Rates for periodicals

Section 707 of the bill requires the Postal Service, acting jointly with the Postal Regulatory Commission and the General Accounting Office, to study and submit to the President and Congress a report concerning (1) the quality, accuracy, and completeness of the information used by the Postal Service in determining the direct and indirect postal costs attributable to periodicals; and (2) any opportunities that might exist for improving efficiencies in the collection, handling, transportation, or delivery of periodicals by the Postal Service, including any pricing incentives for mailers that might be appropriate. The report shall include recommendations for any administrative action or legislation that might be appropriate.

Sec. 708 Assessment of certain rate deficiencies

Section 708 of the bill requires the Office of Inspector General of the Postal Service to study and submit to the President, the Congress, and the Postal Service a report concerning the Postal Service's administration of the reduced rate provisions of section 3626(k) of title 39. The study must specifically address the adequacy and fairness of the process by which assessments are determined and appealable, including whether the Postal Regulatory Commission or any other body outside the Postal Service should be assigned a role, and whether a statute of limitations should be established for the commencement of proceedings by the Service.

Sec. 709 Definition

Section 709 of the bill declares that the term "Board of Governors" as used in this title shall have the same meaning as given in section 102 of title 39.

TITLE VIII - MISCELLANEOUS; TECHNICAL AND CONFORMING AMENDMENTS

Sec. 801 Employment of Postal Police Officers

Section 801 of the bill further amends section 404 of title 39 to provide permanent authority for employment of Postal Service police officers. This section remedies an oversight in the Postal Reorganization Act of 1970 which has required Congress to enact temporary authority each fiscal year via the appropriations process. The Postal Service currently employs more than one thousand police officers to serve as guards and security personnel throughout its facilities.

Sec. 802 Date of postmark to be treated as date of appeal in connection with the closing or consolidation of post offices

Section 802 of the bill further amends section 404 of title 39 to provide that the appeal to the Postal Regulatory Commission of a post office closing by any person shall be considered timely if it is postmarked within 30 days of notification of the closure to the appellant. The Commission testified that current law, which requires the appeal to be received by the Commission within 30 days, precludes adequate consideration of certain post office closings.

Sec. 803 Provisions relating to benefits under chapter 81 of title 5, United States Code, for officers and employees of the former Post Office Department

Section 803 of the bill amends the section 8 of the Postal Reorganization Act of 1970 (39 U.S.C.1001 note) and addresses the administrative status of employees affected by change made by Public Law-105-33 (repealing the authority for transitional appropriations) by clarifying their status as officers and employees of the U.S. Postal Service.

Sec. 804 Obsolete provisions

Subsection 804(a) of the bill repeals chapter 52 of title 39, relating to contracts for the surface transportation of mail. Such contracts are now let under section 5005 of title 39.

Subsection 804(b) authorizes the Postal Service to modify the statutory four-year limitation on postal transportation contracts as it deems appropriate or advisable. The four-year limitations in current postal law date from President Grant's Administration and reflect the spoils system of that era by allowing a new President to assume control of the Post Office Department and its accompanying patronage.

Sec. 805 Expanded contracting authority

Section 805 of the bill amends 5402 of title 39 and corresponding provisions in title 49, relating to air transportation. In substance, section 805 permits the Postal Service to contract for international air transportation of mail at competitive market rates. Under current law the Postal Service may contract freely for interstate air transportation of mail (outside of Alaska), but international air transportation of mail is regulated by the Department of Transportation, and U.S. carriers are generally entitled to preference in the carriage of U.S. mail. The Postal Service's inability to contract freely with U.S. and foreign air carriers for international transportation of mail diminishes its competitiveness in international markets and costs the Postal Service an estimated $40 million to $50 million annually. The amendment further provides for (1) repeal of duty-to-carry requirements imposed on U.S. air carriers (as inconsistent as Postal Service authority to negotiate); (2) exclusion of foreign carriers whose governments bar U.S. carriers from carrying their international mail; (3) consultation between the Postmaster General and the Secretary of Defense in respect to the carriage of international military mail. The Department of Transportation supports this amendment.

Sec. 806 Investments

Section 806 of the bill amends section 2003 of title 39 to prohibit the Postal Service from using funds from the Postal Service Fund to invest in "obligations or securities of a commercial entity." Under the bill, such investments are permitted using funds from the Competitive Products Fund and more appropriate to that fund.

Sec. 807 Repeal of section 5403

Section 807 of the bill repeals section 5403 of title 39. Section 5403 authorizes the Postal Service unilaterally to impose fines on carriers of international mail for delay of the mail or "other delinquencies." Since the bill authorizes the Postal Service to contract for international mail transportation, the authority to levy such fines is no longer appropriate.

Sec. 808 Technical and conforming amendments

Section 808 of the bill section makes several technical and conforming changes to title 39.