890 F.3d 1053
D.C. Cir.2018Background
- The Postal Accountability and Enhancement Act requires the Postal Regulatory Commission to ensure competitive postal products cover "costs attributable" (direct and indirect costs linked by "reliably identified causal relationships") and a share of institutional costs. 39 U.S.C. §§ 3631, 3633.
- Historically the Commission attributed only "volume-variable" (marginal) costs to products and treated inframarginal variable costs as institutional, leaving much variable cost unattributed.
- UPS petitioned to require attribution of all inframarginal costs to competitive products, arguing the historic approach allowed the Postal Service to subsidize competitive products and compete unfairly.
- The Commission rejected attributing all inframarginal costs as "unverifiable," but adopted a narrower incremental-cost method: attribute volume-variable costs plus the inframarginal costs that would disappear if the product did not exist (product incremental cost).
- UPS challenged the 2016 Commission orders, arguing the new attribution rule conflicts with the Accountability Act and is arbitrary and capricious; the D.C. Circuit denied UPS’s petitions.
Issues
| Issue | UPS's Argument | Commission/USPS Argument | Held |
|---|---|---|---|
| Whether "institutional costs" unambiguously excludes variable (inframarginal) costs | "Institutional costs" means overhead/fixed costs only; variable costs must be attributable | "Institutional costs" may be residual costs (fixed or variable) not attributable; longstanding postal usage supports this | Court: Commission's interpretation is reasonable; Chevron deference applies; not compelled otherwise |
| Whether "indirect postal costs" must mean only joint costs shared across products | "Indirect" means jointly-caused costs; Commission's method attributes none of these | Commission: "indirect" can include single-product "piggyback" costs that vary indirectly with volume; its method does attribute some common/indirect costs | Court: Commission's reading reasonable; methodology attributes some indirect costs |
| Whether the Commission failed to grapple with statutory text or past practice | Commission departed from prior statements and gave no adequate statutory justification | Commission relied on longstanding postal ratemaking meanings and explained consistency with statute and history | Court: No undue departure; explanations and historical usage suffice; no further justification required |
| Whether incremental-cost attribution is arbitrary or relies on unverifiable assumptions | Rejects incremental approach as based on equally speculative assumptions as UPS's proposal and rejects use of distribution keys or constant-elasticity extrapolations | Commission limited attribution to costs supported by reliable causal evidence, rejected wholesale attribution of inframarginal costs as empirically unverifiable, and constrained modeling assumptions to small, empirically supported ranges | Court: Commission acted reasonably, explained choices, and did not act arbitrarily or capriciously; petitions denied |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (establishes deference framework for reasonable agency statutory interpretations)
- National Ass'n of Greeting Card Publishers v. U.S. Postal Service, 462 U.S. 810 (1983) (discusses costs attribution in postal context and legislative background)
- U.S. Postal Service v. Postal Regulatory Comm'n, 785 F.3d 740 (D.C. Cir.) (2015) (prior D.C. Circuit discussion of Commission authority and Chevron deference)
- U.S. Postal Service v. Postal Regulatory Comm'n, 842 F.3d 1271 (D.C. Cir.) (2016) (noting Act creates a price floor requiring competitive products to cover attributable costs)
- Manufacturers Railway Co. v. Surface Transportation Bd., 676 F.3d 1094 (D.C. Cir. 2012) (standard for reviewing agency technical judgments)
- Alliance of Nonprofit Mailers v. Postal Regulatory Comm'n, 790 F.3d 186 (D.C. Cir. 2015) (deference to agency technical judgments in postal ratemaking)
- LePage's 2000, Inc. v. Postal Regulatory Comm'n, 642 F.3d 225 (D.C. Cir. 2011) (agency must explain differential treatment of like cases)
- Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016) (agency must provide reasoned explanation for policy changes)