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Case number 17-1276 et al.

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National Postal Policy Council petitioner versus Postal Regulatory Commission.

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Ms.

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Kan for the mailer petitioners.

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Mr. Belt for the petitioner U.S.

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Postal Service.

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Ms.

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Gershweng for the respondents.

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Good morning.

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Good morning, Your Honor, and may it please the court.

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My name is Aisha Khan, and I am here on behalf of the mailer petitioners.

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This case raises three sets of issues.

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I'd like to start with the threshold question that it is.

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Can you speak more directly into your phone?

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Yes, is that better?

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Yes, thank you.

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OK, OK.

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So what I was saying was that this case raises three distinct sets of issues, and one of them is a threshold issue, which is

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the statutory interpretation question of whether the system to be modified or replaced under Section 3622D3 is the regulatory system or both the regulatory system and the statutory requirements.

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The other side's case essentially boils down to this, that the alternative system, the ability to adopt an alternative system in that statutory provision

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conveys the broad unilateral authority to wipe out the statutory requirements.

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There are several reasons why that is plainly incorrect, but I would like to speak to two of them.

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The first is that it is inconsistent with the text of the statute, not only with the words requirements and the word shall in D1 and D2,

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but also with subsection D3 itself.

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And in particular with the language that the power to modify or replace the system applies to the system established under this section.

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And I'd like to point the court to telecommunication.

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Ms.

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Cohn, did the regulatory system

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that the commission adopt include the price cap?

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Does the regulatory system include the price cap?

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The regulatory system that they adopted includes a price cap because the price cap is a statutory requirement.

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My point in asking the question is telling us is a difference between the system, the regulatory system

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system and the statutory system doesn't tell us anything if they both include the price cap.

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It includes the price cap only because the statute imposes the price cap as a requirement.

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The price cap requirement itself is not part of the system.

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The price cap requirement is established by the statute rather than under the statute.

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And so in telecommunications... Go ahead.

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In Telecommunications Research and Action Center, a very similar situation was presented.

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And that was the statute in which the language said the obligation imposed under the statute.

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That was the language there.

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And the question was whether that referred to the statutory requirements or to what the FCC had done.

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And it was about the fairness doctrine.

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and the obligation related to the obligation to give equal time to competing viewpoints on issues of public importance.

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And the court said that because the statute used the word, the words imposed under this section, that meant it was referring to what the FCC had done rather than to what the statute itself had done rather than the statutory obligation.

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And that's exactly what we have here.

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Well, here's the problem.

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Let me just explain to you, I think the most difficult issue you face is this.

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Maybe you could just tell me what the answer is.

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And you've alluded to it.

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So during the first 10 years, the commission's power is limited to modify.

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But after that period, it can modify and adopt such alternative system as necessary.

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It only imposes one requirement on that alternative system that it's necessary to achieve the system.

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So under your interpretation, the phrase adopt such alternative system plays no role in the statute.

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That's the biggest problem I have with this.

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That is with your argument.

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It just seems to me that the statute so clearly gives the commission more power after the 10-year period than it did in the first.

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And that additional power is the power to modify with only one limitation.

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And that limitation is not the price cap.

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That's what bothers me about your argument.

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I can't get around.

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I hear you, and I will admit that it gives more power, but that's a different question than whether that enhanced power extends to the ability to jettison the statutory requirements.

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And let me try to explain why.

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If you look at section D3, it has two sentences, right?

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The first sentence is, review the system to make sure it's meeting the objective, the system established under this section.

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and see if it's meeting the objectives.

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That's clearly not surplusage, right?

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That power, that the obligation to look at the system 10 years later would not otherwise have been required.

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Now, if you look at the second sentence, it then says you can either modify or replace.

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I'm using replace as the shorthand for adopt an alternative system.

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That too is not surplusage because all that says is you can take a bold approach or you can take an incremental approach.

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And so it allows, it authorizes the commission basically to throw out the system it adopted under section A, which was an establishment of a system in the first place that complied with the statutory requirements.

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So take a bold approach, take an incremental approach, but the bold approach would not have been authorized under section A, right?

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Section A was to adopt a system

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but not necessarily every year to throw out the system that you adopted under A and then replace it with something else every year for 10 years, which would have been too disruptive on the postal system.

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And so I don't think that the fact that it has to undertake a review and then can take a bold approach that starts afresh means that D3 is somehow surplusage.

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I also think that interpreting D3 to allow the commission basically to throw out, throw to the curb the entire statutory boundary that Congress established in the PAEA defies common sense.

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Congress in 1792 has set the ceiling for postal rates.

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It did it in the beginning by actually setting postal rates, six cents, 25 cents, depending on distance,

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back in 1792, it does it again in the PRA in 1970, when it says, we're gonna impose a cost of service ceiling on increases.

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And then it, for four to five years, negotiates about what's the right policy choice in 2006, when it enacts the PAEA.

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And it says, we are going to impose a CPI price cap.

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And that's going to drive, impose the ceiling.

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And it prioritizes- Ms.

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Collins, do you think Senator Collins misread the statute?

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I do, Your Honor.

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I think that relying on Senator Collins' statement really- No, no, no.

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I didn't say I wanted to rely on it.

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I just asked you whether she misinterpreted the statute.

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I think she misinterpreted it.

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And let me try to explain why.

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Both the House bill and the Senate bill had a price cap.

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Both of them had a CPI price cap very clearly.

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And, you know, we have alerted the court to that with our supplemental authority filing.

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I think it is completely defies complete common sense to think that Congress would have adopted a statute that would have allowed a CPI price cap to be thrown out completely

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I mean, the way the PRC and the USPS.

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Let me just ask you, isn't that pure speculation on your part?

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Congress, when the House and Senate adopt different provisions, call a conference.

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And during the conference, there's nothing, of which I'm aware, that would require the conference report to maintain a price cap.

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And so Judge Tatel's question, it seems to me, has to be answered in light of the power under congressional rules during a conference, a House Senate conference, to come up with a new piece of legislation.

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Now, there are all kinds of procedural objections that might be raised, but none are present in this case.

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So both the Senate and House had caps.

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The committee's conference committee met and at least according to Senator Collins and indeed the commission's brief came up with this compromise.

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Keep it for 10 years and then

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having limited the authority of the commission by setting out these standards in great detail, said if the commission finds that the current system is not working, then it has the authority to adopt a new system.

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So back to Judge Taylor's question, how can the court conclude

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that Senator Collins speaking on the floor has misinterpreted what the conference committee adopted.

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I think there are several aspects to legislative history.

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First of all, there's no conference report in this case.

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So all we have are the House bill that was passed by the House

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the Senate bill that was passed by the House and Collins' statement.

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That is really all we have.

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No, we actually have the bill that came out of conference.

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Of course.

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For some reason, we want to ignore that.

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No, Your Honor, I am not asking you to ignore that.

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I'm asking you to interpret that in a way that's consistent with legislative history and with the language of the statute.

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Do we have any legislative history that was consistent

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Temporaneous with Senator Collins' statement indicating that she had misinterpreted what the conference bill did?

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No, Your Honor, we do not have that.

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But what we do have is case law that when it does rely on Senator's statement, it looks for other confirmation of that interpretation.

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So the other side has been unable to cite a single case

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where a sole senator statement addressed an issue and then the court relied on it to interpret the statute.

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Usually you have all kinds of other statements or other aspects of legislative history, committee reports, conference reports.

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And what you have instead in this case is the only reports that are out there are relate to statutes that included a price cap.

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So you think in that circumstance the court must speculate

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No, your honor, I am not asking you to speculate.

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I am asking you to look at the statutory language, which refers to a system established under this section.

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And I'm asking you to look at the history of congressional action in this area.

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And I'm asking you to look at the fact that both bills that led to this statute included a price cap.

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And when you put all of that together,

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One of the problems I have with your statutory analysis at which hinges on established under is you assume that the that language established under refers to the commission.

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doing the establishment.

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But there's no reason for that not also to refer to Congress.

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If established under, it refers to both the commission and Congress itself, then you lose.

[00:14:22] Speaker 07:
Well, Your Honor, I think it's reading the language.

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If it refers to both the statutory requirements and the regulatory system, then yes.

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I'm talking about the actors.

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The actors here are either Congress or the commission with respect to the system.

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And if that D3 refers to both, then you can't prevail.

[00:14:50] Speaker 07:
Yes, Your Honor, but I think it can't refer to both because if you look at 3622A, it uses the word establish a system.

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And then you see that same language.

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you see established under this section.

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And then lastly, I think if Congress meant in D3 that you could throw out the entire statutory bound to policy judgment, then it would have said evaluate whether the system is meeting the requirements.

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It would have referred to the requirements as being up for reconsideration.

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Sorry, I said that wrong.

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It would have said, are the requirements meeting the objective?

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But that's not what it says.

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It says, is the system established under this section meeting the objectives?

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And there was a great deal that the commission did back in 2006.

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It went through two rounds of notice and comment, took 10 months, issued dozens of pages of regulation.

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There was a whole host of issues that were up for consideration, rewards and penalties, all kinds of incentive regulation they could have adopted.

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for particular products because the price cap only applies to classes.

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And mind you, the price cap in the House bill was even tighter.

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It applied to subclasses.

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So, you know, all the products in a particular subclass could not increase in price by more than CPI.

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So it was even tighter than the Senate bill.

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But even so, the statute as enacted gave the commission considerable discretion

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to do a great deal in regulating postal rates and the postal system.

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I see that I am well into my rebuttal time.

[00:16:36] Speaker 05:
So if the court has... I actually have a couple of questions about your arbitrary capricious argument.

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Your backup argument.

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Let me just put my question in perspective.

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You make a lot of arguments in your brief and your brief is good.

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You make a lot of arguments in your brief, but what struck me reading the briefs is that all of the arguments, they implicate three basic principles that require deference by this court.

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The statute requires the commission to balance nine different objectives, some of which are competing.

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The decision is highly technical and it's predictive.

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And any one of these alone would require us to defer to the commission and all three of them are present in this case.

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So my question is to you, of all the arguments you've made,

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Could you start with the one that you think is this, given the deference, and I assume you don't agree with me, don't disagree with what I just said about the commission and our deference to its decision here.

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What is your best argument given the deference that this court could conclude that the commission's order here is arbitrary?

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What's your best argument?

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I think my best argument has to do with predictable and stable rates.

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And it is that earlier in this same docket, the commission looked at the possibility of what was then a 5.7% one-time increase.

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And this was designed to, was effectively at that point, what I will call a race reset.

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And they said that was, would create

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I'm going to quote for you, a shock to the system.

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You're focusing on one of the statutory factors, right?

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Predictable rates.

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Yes, so this is objective two.

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Predictable and stable rates.

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Okay, great.

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The Commission decided that this proposal, which the Commission itself had come up with, was considering, of a 5.7% increase above CPI,

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was quote, well outside the industry's experience under the PAEA system of rate making and gave mailers a limited opportunity to make adjustments.

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And instead, what it proposed, at that point it was in the proposal phase, it was in order 4258, what it proposed instead was we're going to adopt a 2% increase

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for five years, because as they put it, that reflected regular and stable timing and magnitude that would allow mailers to plan.

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So that's what they said.

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They felt like it was too dramatic.

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And then what they did in the end was to adopt a formula, a density formula and a retirement authority formula that led to exactly the same one-time price increase

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It was 5.6.

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When you combine the 4.5 density and the 1.1 retirement, you come up with a 5.6% increase above CPI to go into effect all at once.

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And they never reconciled.

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And they were so unable to predict what the authority would be.

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They used words like, well, this is a very modest proposal.

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we're going to look at what it would have been in the last many years, it would have averaged 1%.

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I hear what you're saying about that, but here's my problem.

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You're focusing on one factor here.

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And the commission had all of these other factors to balance.

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In fact, you know, your argument, you've made exactly the argument I would expect you to make, that

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the commission should have balanced some of these factors differently and in your favor.

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And the postal service looks at the same factors and argues that the commission should have balanced them differently.

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But what we have here is, and everybody agrees that the commission considered the factors, took them into account, made a judgment.

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And it's very hard for me to see how we can second guess that.

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I just, that's my problem.

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In other words, I don't think you can make your case by focusing as much as you do on just one factor when the commission considered them all and the Postal Service is arguing just the opposite.

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And that's what I'm looking for.

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I'm looking for some way in which I could conclude that the way in which the commission balanced the factors, the way in which it considered and balanced the factors was itself

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arbitrary and capricious.

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It seems to me that's the case you have to make.

[00:21:51] Speaker 07:
Yes, and I think I have several responses to that.

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The failure to reconcile what they did with respect to predictable and stable rates with internal inconsistency within the same docket has been found to be arbitrary and capricious by this course.

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With respect to balancing the other objectives,

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Part of the problem here is that they ignored some of them.

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So for example, maximizing incentives to reduce costs and increase efficiency.

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The commission found that the Postal Service had not met many of its own cost savings projections.

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It had pricing inefficiencies.

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Its productivity had declined in each of the past five years.

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It found that the incentives, which is objective one, were not maximized and that the service standards

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objective, which is objective three, was also not maximized, was also not accomplished.

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But then they adopted authorities that did nothing about any of that.

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Nothing.

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Ignored it completely.

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None of the money they get needs to go to improvement.

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They receive the full amount of costs attributable to volume decline, even the portion caused by poor service, or even the portion that would have been ameliorated by inefficiencies.

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And so what they've done is they've rewarded the decline.

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We had a leading economist on pricing regulation, Robert Willig, explain how what that does is it simply rewards service declines, more decline, more money.

[00:23:26] Speaker 07:
And it's irrational to ignore the central issue that animated the PAEA, which was to impose a ceiling to drive down costs.

[00:23:35] Speaker 07:
And all of this highlights why that ceiling is so important.

[00:23:39] Speaker 07:
Because Congress made a policy judgment

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that putting a ceiling on postal rates forces what was the number one policy objective, which was to engender cost efficiencies.

[00:23:53] Speaker 07:
And when you lift that ceiling, and mind you, because of this idea of balancing, it's very hard to apply the statute.

[00:24:02] Speaker 07:
I think this is why we raised the delegation argument.

[00:24:04] Speaker 07:
Once you lift that ceiling, the whole world is open to you.

[00:24:09] Speaker 07:
To this year, it was a price cap.

[00:24:12] Speaker 05:
I'm sorry to ask the question this way, but I guess you were serious about the non-delegation.

[00:24:26] Speaker 05:
How could you have a non-delegation problem?

[00:24:28] Speaker 05:
when the statute has nine different factors that the agency's supposed to balance.

[00:24:35] Speaker 05:
I mean, compare that to American Trucking.

[00:24:37] Speaker 05:
Do you know what the statute in American Trucking said that the court said had no non-delegation problem?

[00:24:44] Speaker 07:
Yes, Your Honor.

[00:24:45] Speaker 05:
Requisite to the public health, that's it.

[00:24:49] Speaker 05:
To protect public health.

[00:24:50] Speaker 05:
Requisite to the public health, no non-delegation problem.

[00:24:55] Speaker 05:
Here you have a statute that, in addition to generic language like that, tells the commission to balance nine separate factors.

[00:25:04] Speaker 07:
Your Honor, the problem is?

[00:25:06] Speaker 05:
Yeah, what?

[00:25:08] Speaker 07:
The problem is, I understand the non-delegation doctrine is not especially robust, but what we don't have in Whitman Trucking is a situation where the objectives point in all different directions.

[00:25:22] Speaker 07:
They are entirely in tension with one another.

[00:25:24] Speaker 07:
That wasn't true in Whitman trucking.

[00:25:27] Speaker 07:
So imagine if in Whitman trucking, not only did it say adopt standards that are necessary requisite to public health, but it also said, and show discretion to state rules on pollutants, or also enhance industry efficiency.

[00:25:44] Speaker 05:
Just to cut this short for just a minute, because I have just a couple of quick questions.

[00:25:48] Speaker 05:
But I think that's an argument you have to make to the Supreme Court.

[00:25:51] Speaker 05:
You know, all we have is American trucking.

[00:25:56] Speaker 05:
This is a lower federal court.

[00:25:59] Speaker 05:
And I just, I don't know of any case that you cited.

[00:26:03] Speaker 05:
I don't know of any case myself that would support finding a non-delegation problem here.

[00:26:09] Speaker 05:
Let me just ask you, I just have three quick fact questions for you.

[00:26:14] Speaker 05:
That's all, okay?

[00:26:15] Speaker 05:
And then I'm finished.

[00:26:18] Speaker 05:
Are mailers of market dominant

[00:26:20] Speaker 05:
of products captive customers?

[00:26:24] Speaker 07:
I'm sorry, are they what with customers?

[00:26:26] Speaker 05:
Are mailers of market dominant products captive customers?

[00:26:33] Speaker 07:
Captive customers.

[00:26:35] Speaker 05:
Sorry, your honor.

[00:26:35] Speaker 07:
I couldn't understand if you were saying capped at or capped his.

[00:26:38] Speaker 05:
Captive.

[00:26:39] Speaker 07:
Captive.

[00:26:40] Speaker 07:
Yeah.

[00:26:40] Speaker 07:
Well, for the vast majority of the products, yes.

[00:26:44] Speaker 05:
Okay.

[00:26:47] Speaker 05:
Question number two.

[00:26:48] Speaker 05:
The mailers have some estimates of price elasticity in their comments.

[00:26:57] Speaker 05:
Were they based only on market dominant products?

[00:27:02] Speaker 07:
Yes, the price elasticity models that the Brattle Declaration relied on were the postal services pricing elasticity numbers,

[00:27:17] Speaker 07:
And then on top of that, they ran a regression to show that the density factor increases.

[00:27:26] Speaker 05:
My question was, those were only based on market dominant products, correct?

[00:27:32] Speaker 07:
Yes, I believe I will correct.

[00:27:35] Speaker 07:
my misrepresentation after if I am wrong, but that was my current understanding.

[00:27:40] Speaker 05:
Okay.

[00:27:40] Speaker 05:
Last question.

[00:27:41] Speaker 05:
You advocate that the commission should have used this roll over, roll over forward, right?

[00:27:51] Speaker 07:
Yeah.

[00:27:51] Speaker 05:
Well, does that account for changes in mail volume?

[00:27:57] Speaker 07:
I believe it does.

[00:27:58] Speaker 07:
My, and I want to clarify, we were not saying

[00:28:03] Speaker 07:
they should necessarily use the roll forward model.

[00:28:07] Speaker 07:
What we said is this is a time tested model for cost assessment that has been used in the past and that they should use that as a sanity check on this, meaning run it and use it to assess whether the density authority that they did land on was a good indicator of how to capture the cost they were trying to capture.

[00:28:30] Speaker 06:
Okay.

[00:28:31] Speaker 06:
Thank you.

[00:28:32] Speaker 06:
Judge Randolph, do you have any questions you'd like to ask at this point?

[00:28:37] Speaker 02:
No.

[00:28:38] Speaker 06:
Thank you.

[00:28:39] Speaker 06:
All right.

[00:28:39] Speaker 06:
So why don't we hear from counsel for the U.S.

[00:28:49] Speaker 06:
Postal Service, Mr. Belk.

[00:28:55] Speaker 01:
Good morning, Your Honors, and may it please the Court.

[00:28:58] Speaker 01:
The Postal Service has filed a separate petition challenging a different aspect of the Commission's final rule.

[00:29:03] Speaker 01:
But we agree with the Commission in several important respects.

[00:29:06] Speaker 01:
We agree that the initial price cap system failed.

[00:29:09] Speaker 01:
In fact, no one disagrees.

[00:29:11] Speaker 01:
We agree with the Commission that it has the legal authority to address that failure by altering the price cap formula.

[00:29:18] Speaker 01:
And we support the alterations the Commission made.

[00:29:20] Speaker 01:
They are helpful.

[00:29:22] Speaker 01:
But those adjustments are not themselves sufficient to achieve the financial stability objectives.

[00:29:28] Speaker 01:
To do that, another step is needed.

[00:29:32] Speaker 01:
Prices subject to the price cap needed to be allowed to reset to a compensatory and cost covering level.

[00:29:40] Speaker 01:
The Commission acknowledges that that additional step would help the system achieve the financial stability objectives.

[00:29:47] Speaker 01:
The Commission also acknowledges that periodic rebasing between regulatory periods is an accepted practice in price cap regulation.

[00:29:55] Speaker 01:
But it refused to take that additional step.

[00:29:57] Speaker 01:
And because we believe that that decision, that refusal was not reasonable or reasonably explained, we asked that the case be remanded for further proceedings.

[00:30:09] Speaker 05:
So is it your position that any rate-making system that doesn't cover the full cost of services arbitrary and capricious?

[00:30:21] Speaker 01:
Is that your position?

[00:30:22] Speaker 01:
Our position is that any rate making system that doesn't allow the Postal Service a reasonable opportunity to cover its costs is unreasonable.

[00:30:31] Speaker 01:
And what would you rely on in the statute for that?

[00:30:34] Speaker 01:
I would rely on the financial stability objective.

[00:30:37] Speaker 01:
And I think there's both statutory language within that objective and the commission's interpretation, unchallenged interpretation of that language that leads me to that conclusion.

[00:30:46] Speaker 01:
So let me start with the commission interpretation.

[00:30:48] Speaker 05:
I want to hear your answer, but would you keep in mind the question I asked Ms.

[00:30:52] Speaker 05:
Khan about this, which is, I want to hear you arguing about this.

[00:30:55] Speaker 05:
I do, but it seems to me to prevail, you've got to show not just that the commission

[00:31:02] Speaker 05:
misapplied one factor, but that it's balancing all the factors together is somehow arbitrary.

[00:31:09] Speaker 01:
We agree with that.

[00:31:10] Speaker 01:
All right.

[00:31:10] Speaker 05:
That's what I thought.

[00:31:12] Speaker 01:
And let me, I guess I'll take the first set of questions first about the financial stability objective alone.

[00:31:17] Speaker 01:
And then I'll change, I'll shift to the balance question.

[00:31:20] Speaker 01:
As for the financial stability, our position is that first of all, the postal service cannot be financially stable unless it's covering its costs.

[00:31:28] Speaker 01:
It follows that for the rate making system then to achieve that objective, putting aside the balance, but for them to, for the system to achieve that objective, it has to at least give the postal service a reasonable opportunity to cover its costs.

[00:31:40] Speaker 06:
Now we know this because the- Can I ask you, is your position that the reasonable opportunity must at this point encompass 100% recovery?

[00:31:54] Speaker 01:
It must, yes, that our position is that the system must permit the postal service to cover all of its costs going forward.

[00:32:02] Speaker 01:
I mean, I'm talking about past losses.

[00:32:04] Speaker 01:
I'm talking about from this point forward, it has to give us an opportunity to do that.

[00:32:09] Speaker 01:
Now the commission's view, after all, the commission's finding that the system did not satisfy the financial stability objective was based on two things.

[00:32:19] Speaker 01:
One,

[00:32:19] Speaker 01:
that we were unable, the system prevented us from covering our total costs.

[00:32:24] Speaker 01:
That's what the commission referred to as medium-term financial stability, and that it did not give us an opportunity to retain earnings, which necessarily follows from the idea that we weren't covering our costs.

[00:32:35] Speaker 01:
So the commission's interpretation, that's their position too, that financial stability requires the ability to cover costs.

[00:32:41] Speaker 01:
But also when you look at the statutory language, that objective speaks of maintaining financial stability.

[00:32:49] Speaker 01:
And might maintaining financial stability presupposes that financial stability existed at the time that the system went into place.

[00:32:57] Speaker 01:
And that was, in fact, true at the time that the under the 2006 act that the price cap system was in place.

[00:33:04] Speaker 01:
At that time, the Postal Service was financially stable.

[00:33:07] Speaker 01:
It did.

[00:33:08] Speaker 01:
It was covering its costs.

[00:33:10] Speaker 01:
Also, when when the the statutory language speaks of financial stability, including retained earnings,

[00:33:17] Speaker 01:
If retained earnings is included as part of financial stability, it necessarily follows that cost coverage is also part, is a necessary component of financial stability.

[00:33:29] Speaker 01:
So that's our view on the financial stability alone.

[00:33:31] Speaker 01:
Now, Terri, Judge Tatel, turning to your question about the balance, because that's, of course, the most, I think in many respects, the most important question here.

[00:33:38] Speaker 01:
We agree with the commission that the, in fact, the statute is very clear that the objectives must be read in conjunction with each other.

[00:33:47] Speaker 01:
And for that reason, we're not asking for unregulated unfettered pricing authority.

[00:33:52] Speaker 01:
Certainly unregulated unfettered pricing authority would achieve the financial stability objective, but it would undermine other objectives.

[00:34:01] Speaker 01:
What we're saying is the commission didn't reasonably explain how satisfying financial stability by allowing us a reasonable opportunity to cover our costs would prevent the achievement of other objectives.

[00:34:12] Speaker 01:
So that's our view, that if financial stability

[00:34:16] Speaker 01:
can be satisfied without undermining other objectives.

[00:34:20] Speaker 05:
Isn't that inherent in the commission's analysis?

[00:34:27] Speaker 01:
It's certainly their position.

[00:34:29] Speaker 01:
They point to two objectives.

[00:34:31] Speaker 01:
In their view, allowing the Postal Service to cover its costs was undermined.

[00:34:37] Speaker 01:
The objective about maximizing incentives

[00:34:39] Speaker 01:
and the objective about predictability and stability and rates.

[00:34:43] Speaker 01:
And I'll take them one at a time.

[00:34:45] Speaker 01:
As for the first objective, the maximizing incentive, I think the commission's view is that leaving a gap, a going forward gap, leaving a gap between costs and revenues will encourage us to close that gap through cost cutting.

[00:34:58] Speaker 01:
And I think that view I think is inconsistent both with any reasonable price cap theory that we're aware of, and it's inconsistent with the evidence in the commission's own findings.

[00:35:07] Speaker 01:
As for the theory, the commission itself recognized that price caps don't encourage efficiency by holding the regulated entities prices chronically under walk.

[00:35:18] Speaker 01:
And as for the efficiency, the efficiency incentives that are provided in that objective, they're provided by the existence of a price cap.

[00:35:27] Speaker 01:
The system that the commission has implemented in its final rule retains a price cap.

[00:35:32] Speaker 01:
And those incentives are maximized.

[00:35:35] Speaker 01:
It doesn't just say have incentives, this is maximize incentives.

[00:35:38] Speaker 01:
And the commission has said that those, and that's consistent with the legislative history, that those incentives are maximized by the prospect of turning a profit.

[00:35:48] Speaker 01:
That's the incentive, the prospect of turning a profit, not just the fear of avoiding ceasing operations.

[00:35:55] Speaker 01:
I mean, were it otherwise, that would justify always ratcheting down the available pricing authority.

[00:36:02] Speaker 01:
And as for the evidence, if the idea is that the postal service should close the remaining gap through cost cutting, which I think is the Commission's view, the question is whether that can reasonably be done.

[00:36:15] Speaker 01:
The Commission found that we cut costs and increased efficiency over the period that the original system was in effect.

[00:36:22] Speaker 01:
that didn't find that we failed over any of those 14 years to exercise efficient management or prudent management or that we somehow didn't take advantage of cost-cutting opportunities that were there.

[00:36:34] Speaker 01:
It hasn't pointed to any cost-cutting opportunities that would close the gap in the future.

[00:36:39] Speaker 01:
In fact, the commission recognized at several points that further cost-cutting would be difficult in light of our legal obligations and restraints.

[00:36:48] Speaker 01:
and it endorsed the only record evidence on this topic, which said that those opportunities wouldn't even come close to closing the gap.

[00:36:59] Speaker 01:
The sort of cost-cutting opportunities of that magnitude just aren't there under current law.

[00:37:05] Speaker 01:
And I'll also add as to that objective, it really doesn't make any logical sense.

[00:37:11] Speaker 01:
We have had a cost revenue gap for 14 years.

[00:37:14] Speaker 01:
So I don't know why there's something about preserving that gap that's supposed to suddenly incentivize new cost cutting ideas.

[00:37:21] Speaker 01:
Those incentives have been there.

[00:37:23] Speaker 01:
And also, I'll just add that even with a rate reset and even with the adjustment factors that the commission implemented that we support, we still have ample cost-cutting incentives.

[00:37:35] Speaker 01:
We'd still have more than $80 billion of prior year losses of accumulated debt, including statutory payments that need to be made, debts that need to be paid back, and we'd still be operating under a price cap.

[00:37:48] Speaker 01:
And thus, we still have every incentive to act efficiently

[00:37:51] Speaker 01:
in order to break even or better yet to beat the expectation of the price gap and maybe turn a profit.

[00:37:58] Speaker 01:
Moving to the predictability and stability of rates objective, the commission's analysis doesn't square the sort of claim that there's a tension there with its own uncontested interpretation of that objective's meaning.

[00:38:12] Speaker 01:
The commission said that

[00:38:14] Speaker 01:
The objective requires the system to foster adjustments that are capable of being forecast regarding both the timing and the magnitude, and they don't have sudden or extreme fluctuations.

[00:38:29] Speaker 01:
A rate reset is not inconsistent with either of those prongs, or at least the commission doesn't explain why they are.

[00:38:36] Speaker 01:
I mean, it certainly can be forecast.

[00:38:37] Speaker 01:
I mean, the commission would announce both the permissible amount and the timing.

[00:38:42] Speaker 01:
it wouldn't or at least needn't fluctuate, whether it's a one-time rate adjustment or one that's phased in over a period of years.

[00:38:50] Speaker 01:
And the commission said that the objective, that objective is satisfied by a system with formula rates and a mechanism limiting sort of the magnitude of future price adjustments.

[00:39:01] Speaker 01:
And the revised system has those things.

[00:39:03] Speaker 01:
It has a price cap.

[00:39:05] Speaker 01:
And the commission itself proposed a rate reset back in 2018 without ever concluding that

[00:39:12] Speaker 01:
that the idea of a rate reset, which again is a pretty common, at least in our understanding, pretty common practice in price cap regulation.

[00:39:23] Speaker 01:
But the commission never concluded that when it proposed the rate reset that there was anything inherently inconsistent with the predictability and stability objective.

[00:39:36] Speaker 02:
The commission has the authority after the one 10 year review

[00:39:42] Speaker 02:
to have another review for six months later, a year later, two years later, is that correct?

[00:39:48] Speaker 01:
They have the authority to review.

[00:39:49] Speaker 01:
Yeah, the 10-year review is not the last review.

[00:39:53] Speaker 01:
It's the mandatory review.

[00:39:54] Speaker 02:
Something as appropriate thereafter.

[00:39:57] Speaker 02:
So if after a year under the new system that the commission has put into effect, it appears that the Postal Service is still not fiscally solvent.

[00:40:10] Speaker 02:
There's nothing to prevent the commission from entertaining another petition by the Postal Service

[00:40:16] Speaker 02:
to increase the rates, isn't that right?

[00:40:19] Speaker 01:
That's correct.

[00:40:20] Speaker 01:
But but our view is that this that this system right now is that the commission has it recognized that it has a responsibility in this 10 year review to implement changes necessary to achieve the objectives.

[00:40:33] Speaker 01:
And and and Section 3622 as a whole says the system has to be designed to achieve these objectives.

[00:40:41] Speaker 01:
And in our view, the commission, while doing certain things that are helpful,

[00:40:45] Speaker 01:
missed a step that would actually be designed to achieve those objectives.

[00:40:49] Speaker 01:
So I don't think that they can just say, well, we didn't achieve them now, but maybe we'll achieve them five years from now.

[00:40:54] Speaker 01:
I mean, the commission itself recognized that it had the obligation, having found that the system failed, which again, no party disagrees with, to actually do something that fixes it.

[00:41:06] Speaker 01:
So it basically needed a plan.

[00:41:09] Speaker 01:
And there just isn't a plan here that satisfies the objectives.

[00:41:15] Speaker 01:
I see that I'm over my time and into my rebuttal time.

[00:41:20] Speaker 01:
If the court doesn't have any further questions, we ask that the case be remanded for an additional proceeding as to the rate we set.

[00:41:28] Speaker 01:
Thank you.

[00:41:29] Speaker 06:
All right, thank you.

[00:41:29] Speaker 06:
Let us hear from counsel for the commission.

[00:41:36] Speaker 03:
May it please the court, I'm Dana Kersong for the Postal Regulatory Commission.

[00:41:41] Speaker 03:
The commission's order was plainly within its statutory authority.

[00:41:45] Speaker 03:
And it was a reasonable and reasonably explained response to the fact that the inflation-based price cap is getting in the way of the statutory objectives.

[00:41:55] Speaker 03:
I'm happy to answer any questions that the court might have.

[00:41:58] Speaker 03:
Otherwise, I think the court understands the issues here.

[00:42:08] Speaker 05:
Could you say something about their argument about system

[00:42:13] Speaker 05:
the difference between the regulatory and statutory systems?

[00:42:17] Speaker 03:
Certainly, Your Honor.

[00:42:18] Speaker 03:
So the text of 3622D3 requires the commission to review the system.

[00:42:25] Speaker 03:
That's the system created by the statute of which the price cap is a part after 10 years and provides that if the system, the commission rather, determines that the system is not working, is not achieving its statutory objectives,

[00:42:41] Speaker 03:
It can modify or adapt an alternative system so it can either change it or it can replace it entirely.

[00:42:49] Speaker 03:
The price cap is plainly under the language of D1 and D3 part of that system.

[00:42:58] Speaker 03:
And this of course was the legislative compromise.

[00:43:03] Speaker 03:
There was a house bill where the price cap could be jettisoned at any time if the commission made certain findings.

[00:43:12] Speaker 03:
There was a Senate bill that made it permanent and the compromise was tried for 10 years.

[00:43:19] Speaker 05:
And it didn't work.

[00:43:20] Speaker 05:
Do you think we need to use legislative history at all in this case?

[00:43:26] Speaker 03:
No, Your Honor, the language of 3622 D3 is clear.

[00:43:31] Speaker 03:
The commission can adopt an alternative system as necessary to meet the objectives.

[00:43:37] Speaker 03:
That's what the commission.

[00:43:38] Speaker 06:
So you draw no obstacle from the fact that there were statutory requirements and then there was authority given to the commission.

[00:43:54] Speaker 06:
Because as I understand your argument, you're not fighting, not fighting, but not disputing the commission's obligation, making whatever judgment it reaches to consider and explain statutory objectives, the factors, et cetera.

[00:44:17] Speaker 06:
So why can the court simply treat the price cap requirement

[00:44:26] Speaker 06:
as something different.

[00:44:31] Speaker 03:
So the price cap is a requirement for the system that the commission created under under a one.

[00:44:41] Speaker 06:
And that argument for the mailers saying, you know, they understand that argument as you presented

[00:44:54] Speaker 06:
but they say the structure of the statute, what Congress actually did is inconsistent with the commission's reading.

[00:45:06] Speaker 06:
As I understand it, and council hasn't framed it this way, but Congress was required to say, and any alternative system may exclude a price cap that is now a statutory requirement.

[00:45:25] Speaker 03:
So, respectfully, the statute here gives the Commission the authority to adapt an alternative system.

[00:45:35] Speaker 03:
The price cap is part of the system that the Commission can adapt an alternative to.

[00:45:42] Speaker 03:
You know, we know that was the legislative compromise but also just looking at the statute itself.

[00:45:49] Speaker 03:
If that weren't the case, then the D3 the second sentence of D3 would be superfluous in a couple of ways.

[00:45:59] Speaker 03:
The language adopt an alternative system really would not be doing any work because the commission already has the authority to modify the system, to revise the system at any time under A3.

[00:46:15] Speaker 03:
So it's not clear what adopt an alternative system would do if it couldn't be a system that is different from the system that is described in the rest of 3622.

[00:46:26] Speaker 06:
In your view, what would Congress have had to say to make it clear that in the first 10 years, the Commission had this modification authority, and after that, it had authority to adopt a system different than the one it had adopted

[00:46:56] Speaker 06:
by regulation.

[00:47:02] Speaker 03:
I'm not sure that I understand the question, Your Honor.

[00:47:06] Speaker 06:
Well, you know as well as I do that the Supreme Court has taught in some instances, and more than taught, it's helped that where there is a fundamental impact on the economic system,

[00:47:28] Speaker 06:
affecting some major activity, the Congress has to be very explicit in saying that the agency has authority basically to disregard statutory requirements and come up with a new system on its own that after finding the current system doesn't work,

[00:47:59] Speaker 06:
may reflect something entirely different than what Congress has conceived of as necessary for a long time.

[00:48:15] Speaker 06:
You don't think that's necessary, that any delegation is broad enough to allow the commission to just ignore the statutory requirements.

[00:48:25] Speaker 06:
That's what I want to be clear about.

[00:48:28] Speaker 03:
So D3, the second sentence of D3 gives the Commission the authority to adopt an alternative system.

[00:48:38] Speaker 03:
And then if you look at 3622, what is this system that the Commission can adopt an alternative to?

[00:48:45] Speaker 03:
That system included a price cap.

[00:48:48] Speaker 03:
And that's certainly the way the drafters of the bill understood this section.

[00:48:54] Speaker 03:
Section 3622 would otherwise be superfluous.

[00:48:59] Speaker 03:
3622D3 would otherwise be superfluous, second sentence, because A, already gives the commission the authority to revise its regulations at any time.

[00:49:11] Speaker 03:
So we know this power to adopt an alternative system is something more.

[00:49:16] Speaker 03:
There are additional preconditions that the commission can only do this after determining by notice and comment that the existing system is not meeting Congress's objectives.

[00:49:30] Speaker 03:
And then Congress said what the commission needed to consider in adopting alternative system.

[00:49:36] Speaker 03:
And it said it needed to consider the objectives

[00:49:40] Speaker 06:
Your argument is that the court ought to read the statute in light of all the steps Congress required before the commission by regulation could adopt a different system.

[00:50:03] Speaker 06:
A different system that did not include a price cap.

[00:50:09] Speaker 03:
Yes, Your Honor, that is certainly part of it.

[00:50:12] Speaker 03:
There are additional requirements to adapting a different system.

[00:50:17] Speaker 03:
Well, that's my question.

[00:50:18] Speaker 06:
Is that the critical point here, that were the court to have any doubt, that that doubt should be mitigated by the fact that Congress left in place not only the factors Judge Tatel has been discussing with counsel,

[00:50:39] Speaker 06:
but these procedurals are.

[00:50:45] Speaker 03:
That's right, your honor.

[00:50:47] Speaker 03:
Both the commission has to make the findings.

[00:50:49] Speaker 03:
They have to find that the alternative system is necessary.

[00:50:52] Speaker 03:
So there are limits on the D3 power that are not there under the A power to just revise regulations.

[00:50:59] Speaker 03:
And then also D3 says both modify and adopt an alternative system.

[00:51:05] Speaker 03:
An adopt an alternative system would not be doing any work.

[00:51:09] Speaker 03:
if it was just talking about modifying the regulations and, you know, as Senator Collins explained.

[00:51:18] Speaker 06:
But I'm trying to figure out what is the persuasive analysis that gets you there.

[00:51:27] Speaker 06:
In other words, is the response in part that Congress didn't have to say anymore in its statute than it said here.

[00:51:37] Speaker 06:
Because

[00:51:39] Speaker 06:
And this is not the non-delegation point, but it not only limited what the commission could do by virtue of all these factors, but the procedural requirements were burdensome before the commission could move to adopt a different system.

[00:52:07] Speaker 03:
Yes, Your Honor.

[00:52:09] Speaker 03:
And the fact that those procedural requirements are there shows that this is some kind of additional authority that is different from the authority that is present under subsection A to revise the regulations, which of course the commission can do at any time.

[00:52:28] Speaker 06:
What I'm trying to respond to, in addition to the line of cases I alluded to, is our court has said

[00:52:36] Speaker 06:
that delegations have to be clear.

[00:52:41] Speaker 06:
And so what is the delegation here?

[00:52:43] Speaker 06:
And the mailers say, yes, there's lots of delegation, but nothing to say that Congress and the commission could rewrite the statutory requirements.

[00:52:54] Speaker 06:
That's all I'm trying to figure out.

[00:52:56] Speaker 06:
What's your strongest argument to overcome that principle

[00:53:06] Speaker 03:
I think it's the language of the second sentence of D3.

[00:53:11] Speaker 03:
If the commission determines after notice and comment that the system is not achieving the objectives in subsection B, taking into account the factors in subsection C, the commission may by regulation.

[00:53:24] Speaker 06:
I understand.

[00:53:25] Speaker 06:
I mean, that's in your argument.

[00:53:26] Speaker 03:
So it's just the second sentence of D3 that you rely on.

[00:53:30] Speaker 03:
The second sentence of D3

[00:53:32] Speaker 03:
Yes, Your Honor, the second sentence of D3 does that.

[00:53:35] Speaker 03:
And if you look at it also in the context of the entire 3622, D3 is clear by itself.

[00:53:45] Speaker 03:
It's supported by 3622 as a whole, which talks about a system of which the price cap is a part and gives the commission authority to adopt an alternative system.

[00:54:00] Speaker 03:
and then you know what we're looking at here this is this is under chevron deference and the question is whether the commission's understanding of the statute is reasonable and i think this is clear it's certainly a reasonable interpretation initially is has congress clearly spoken that's what i've been focusing on you get to step two they're in a different ballpark

[00:54:27] Speaker 06:
All right.

[00:54:28] Speaker 06:
So I think I have your argument.

[00:54:30] Speaker 06:
Anything, David?

[00:54:31] Speaker 05:
Yeah.

[00:54:31] Speaker 05:
You don't mind.

[00:54:32] Speaker 05:
I just have two questions.

[00:54:34] Speaker 05:
I actually only had one until council answered your question there.

[00:54:38] Speaker 05:
I understood your brief to say, to argue that this, that the statute was clear that we didn't need to get to Chevron too.

[00:54:46] Speaker 05:
Isn't that right?

[00:54:47] Speaker 03:
Yes, your honor.

[00:54:49] Speaker 03:
I'm sorry.

[00:54:50] Speaker 03:
I thought that we were positing a situation in which somebody didn't think the statute was clear.

[00:54:57] Speaker 03:
I do think the statute is clear.

[00:54:59] Speaker 05:
I'd like to just ask you one thing about the arguments that we've heard about arbitrary capricious.

[00:55:09] Speaker 05:
So you just heard Council for the Mailers and Council for the Postal Service make their arguments that

[00:55:17] Speaker 05:
for each of their own reasons that the commission's order is arbitrary and capricious.

[00:55:23] Speaker 05:
I know your reaction to their brief.

[00:55:25] Speaker 05:
Do you have any reaction to the arguments you heard today that you'd like to share with us?

[00:55:32] Speaker 03:
You know, the commission's order here

[00:55:41] Speaker 03:
It makes sense.

[00:55:43] Speaker 03:
It is a reasonable response to this problem that nobody really disputes that the price cap was standing in the way of the objectives.

[00:55:52] Speaker 03:
All of the things that we've talked about today are things that the commission addressed in its order.

[00:56:00] Speaker 03:
And the commission reasonably explained why it wasn't doing each of these things.

[00:56:05] Speaker 03:
So I'm happy to talk about any questions, any places where there's any question about what the commission said in its order, but the commission addressed all of these things in its order.

[00:56:23] Speaker 03:
And.

[00:56:25] Speaker 06:
Well, I guess, counsel, the question is, yes, it did.

[00:56:30] Speaker 06:
And now we have two parties arguing, well, maybe it did, but because of problems as to how it responded to some, that means that when you look at what the commission did as a whole, you cannot conclude that its decision was not arbitrary and capricious.

[00:57:00] Speaker 06:
I mean, isn't that what you heard counsel saying?

[00:57:02] Speaker 06:
They don't argue that the commission didn't go one, two, three, four, five, you know, say what it thought.

[00:57:08] Speaker 06:
But as I understood their argument is on fundamental points from their perspective, the commission missed the boat.

[00:57:19] Speaker 06:
And those factors, no one needs factors, findings are sufficient

[00:57:30] Speaker 06:
And in some instances, they argue, require the court to conclude that even looking at everything else the court did, the commission did, what the commission's ultimate decision in its order was arbitrary capricious.

[00:57:45] Speaker 06:
I understood that's what Judge Tatel was trying to get the other two counsel to focus on and you as well.

[00:57:52] Speaker 06:
And telling us if the commission addressed each doesn't really answer.

[00:57:56] Speaker 03:
Certainly, Your Honor.

[00:57:57] Speaker 03:
So I'm happy to address any particular why.

[00:58:00] Speaker 03:
Have you heard what Shantel argued?

[00:58:05] Speaker 03:
So unless there are specific questions, I will start with the Postal Services argument that the commission should have given it more.

[00:58:14] Speaker 03:
And the commission explained it was concerned about rate increases that steep, that it wanted to take a gradual approach.

[00:58:24] Speaker 03:
that it was opening another rulemaking to consider additional authority.

[00:58:28] Speaker 03:
And it was committed to reviewing the entire system in five years or earlier if necessary.

[00:58:34] Speaker 03:
But that it was making a lot of changes at the same time right now.

[00:58:38] Speaker 03:
And there could be shocks or unintended consequences to that.

[00:58:42] Speaker 03:
There could be effects on mailers and mail volumes.

[00:58:47] Speaker 03:
And it wanted to make sure that it was maintaining the benefits of the rate cap,

[00:58:54] Speaker 03:
or achieving the benefits that a recap could have of encouraging

[00:59:02] Speaker 03:
encouraging low prices said, yes, we are not keeping the current rate cap because rate caps don't encourage efficiency by keeping the regulated entities prices chronically underwater.

[00:59:21] Speaker 03:
The mailers talked about that the postal service was not efficient enough

[00:59:29] Speaker 03:
And that there wasn't enough to encourage efficiency and the commission address that it said, look, sometimes you need to spend money to save money.

[00:59:38] Speaker 03:
And the Postal Service has been forced to defer capital investments and use dated worn out and malfunctioning facilities vehicles and equipment.

[00:59:51] Speaker 03:
And instead of being able to invest in efficiency the postal services cut service standards, which is contrary to congressional objectives.

[01:00:03] Speaker 03:
In terms of the role forward.

[01:00:09] Speaker 03:
methodology, we addressed that at 24.02 and 24.03.

[01:00:14] Speaker 03:
We said, you know, that's about attempting to predict next year's losses.

[01:00:21] Speaker 06:
And each of these alleged deficiencies was specifically addressed by the commission and articulated in a manner that supported its judgment, not to adopt a position urge.

[01:00:40] Speaker 03:
Absolutely, Your Honor.

[01:00:41] Speaker 03:
And the commission's bottom line here makes a lot of sense because nobody really disputes that the inflation-based price cap was standing in the way of achieving the objectives.

[01:00:53] Speaker 03:
Rates were not reasonable because they were below cost.

[01:00:57] Speaker 03:
And that was due to costs that were not within the Postal Service's control and not linked to inflation.

[01:01:05] Speaker 03:
So the Postal Service couldn't retain earnings and it couldn't invest in efficiency.

[01:01:11] Speaker 03:
But the Commission also had the concern about the effect on the system of changing too many things at once.

[01:01:19] Speaker 03:
And they said, we're going to do a limited additional authority under a modified rate cap that targets those specific losses.

[01:01:27] Speaker 03:
that like inflation, the one focused on by Congress, are beyond the postal services control while trying to maintain pressure to cut costs and prevent rates from going up too rapidly.

[01:01:38] Speaker 03:
And the commission recognized that there is a lot of uncertainty here and it will review the system again in five years

[01:01:48] Speaker 03:
or earlier if necessary.

[01:01:51] Speaker 03:
So in this highly technical area in which the commission was balancing a lot of things and making predictive judgments, its choice of a gradual change with review, really that underscores its wisdom.

[01:02:10] Speaker 03:
And it also... Finish?

[01:02:15] Speaker 03:
Yes, Your Honor.

[01:02:16] Speaker 03:
You may finish your sentence.

[01:02:18] Speaker 02:
Before you conclude, will you tell me again what function D3 serves in light of subsection A?

[01:02:31] Speaker 03:
Certainly.

[01:02:31] Speaker 03:
So, subsection A allows the commission to make its initial regulations, which are governed by by D one by the requirements and to revise those regulations at any time, subject to the requirements.

[01:02:46] Speaker 03:
D three says after 10 years.

[01:02:49] Speaker 03:
And if it's not achieving the objectives, you can adapt an entire alternative system.

[01:02:56] Speaker 02:
Okay.

[01:02:57] Speaker 02:
But, but just, I think I get it.

[01:03:01] Speaker 02:
The, the authority and a is totally discretionary with the commission about whether it wants to revise its regulations, but the authority under D three.

[01:03:13] Speaker 02:
is a requirement that it take a look at whether the regulations should be revised.

[01:03:21] Speaker 02:
After 10 years.

[01:03:23] Speaker 03:
So D3 is also a grant of additional authority.

[01:03:27] Speaker 03:
It says, if the system isn't meeting the objectives, the commission may modify the system or adopt an alternative system.

[01:03:34] Speaker 02:
They could have done that under A. I mean, anytime you're modifying the system, anytime you change the regulations.

[01:03:42] Speaker 02:
and you're putting in an alternative system if you change the regulation.

[01:03:46] Speaker 02:
So I don't know that that argument goes anywhere.

[01:03:49] Speaker 02:
But the important thing is that D3 required a 10-year review, whereas A doesn't.

[01:03:57] Speaker 03:
So D3 required a tenure review, but the second sentence of D3 is also important.

[01:04:03] Speaker 03:
And that's where it allows the commission to adopt an alternative system.

[01:04:07] Speaker 03:
And we know that alternative system.

[01:04:10] Speaker 02:
I've got your argument.

[01:04:12] Speaker 03:
All right.

[01:04:12] Speaker 06:
Thank you, counsel.

[01:04:14] Speaker 06:
Thank you.

[01:04:15] Speaker 06:
All right.

[01:04:16] Speaker 06:
Counsel for the mailers, give you a couple of minutes.

[01:04:20] Speaker 07:
Thank you, your honor.

[01:04:22] Speaker 07:
And I wanted to point out, and perhaps it may take re-listening to this transcript, but when the PRC's lawyer was telling you what the statute said, she made what the PRC and the Postal Service did in their brief, which is to rewrite the statute.

[01:04:38] Speaker 07:
They used words like rewrite the system established by this section.

[01:04:43] Speaker 07:
They used words like the statute authorized, the D3 authorized the commission to rewrite the entire section.

[01:04:52] Speaker 07:
But that's not what the statute says.

[01:04:54] Speaker 07:
And just as easily as the commission and the Postal Service were able to modify, write their briefs, and develop their argument, it illustrates how easy it would have been for Congress to make this clear.

[01:05:04] Speaker 07:
And I wanted to say that I think, Judge Rogers, you're right, that a delegation needs to be clear, especially when it's something this profound, both with respect to the impact on the economy, but the impact on the Postal Service's ability to serve as the connective tissue,

[01:05:22] Speaker 07:
for which it stands and which it has always been.

[01:05:25] Speaker 06:
Not an argument in your brief, however, Council.

[01:05:30] Speaker 06:
What argument was it in our brief, Your Honor?

[01:05:33] Speaker 06:
The Supreme Court line of authority about expansive impact on the economic system.

[01:05:42] Speaker 07:
Well, I think we have in there that a delegation needs to be clear.

[01:05:46] Speaker 07:
Yes, that's a definition.

[01:05:48] Speaker 07:
Yeah, a profound impact on the economy.

[01:05:51] Speaker 07:
And we certainly made the argument that Congress has played a substantial role in this area.

[01:05:57] Speaker 07:
And it has always had a strong policy hand in how coastal raids should be established and to conclude that it basically said you can throw that entire statutory boundary to the curb and enter into this new no man's land where the commission can basically

[01:06:18] Speaker 07:
do essentially whatever it wants, because while you have these competing objectives.

[01:06:23] Speaker 06:
Of course, that, times what we've been over, requires ignoring all factors, et cetera.

[01:06:31] Speaker 05:
So your position, as I get it, is that the only way Congress could have clearly authorized the Postal Commission to

[01:06:48] Speaker 05:
abandoned the D1A price cap is to have expressly said so.

[01:06:53] Speaker 05:
In other words, under your view, what D3 should have said is that it can revise or adopt the new system, and it's not required.

[01:07:10] Speaker 05:
It should have added without regard to the price cap, right?

[01:07:14] Speaker 05:
That's your position.

[01:07:16] Speaker 07:
My position is they could have done it in a horde of different ways.

[01:07:19] Speaker 05:
They could have done the word initial.

[01:07:21] Speaker 05:
That's truly what you're saying, is that they haven't expressly authorized that.

[01:07:27] Speaker 05:
They said that to say they could come up with a revised system, an alternative system, excuse me, and only impose one requirement on it is not enough.

[01:07:36] Speaker 05:
That to be clear here, they had to actually relieve, expressly relieve the commission of the price cap obligation, right?

[01:07:45] Speaker 05:
No, Your Honor.

[01:07:46] Speaker 05:
Our position is... Well, what should they have said?

[01:07:48] Speaker 05:
Give me an example.

[01:07:49] Speaker 07:
How could Congress have done this?

[01:07:50] Speaker 07:
I think what they said unambiguously accomplishes what I'm saying, which is it says what's established under this section can be redone.

[01:08:00] Speaker 05:
And I think that is unambiguous with... Now, suppose I don't think... Suppose we think the statute quite

[01:08:13] Speaker 05:
contrary to the tone of the questions you may have heard.

[01:08:17] Speaker 05:
Suppose we actually think, largely because of the arguments you've made, that the statute's ambiguous.

[01:08:25] Speaker 05:
What's your best argument that we shouldn't defer the commission?

[01:08:30] Speaker 05:
Because you agree that the commission is owed share on deficits, right?

[01:08:36] Speaker 07:
Your honor, I agree that my position is the statute's unambiguous and I'm hearing you to ask.

[01:08:42] Speaker 07:
It's unambiguous.

[01:08:44] Speaker 05:
I asked you, suppose I don't agree with you about that.

[01:08:48] Speaker 05:
Suppose I think it's ambiguous.

[01:08:50] Speaker 05:
What's the best argument that the commission's interpretation is unreasonable?

[01:08:57] Speaker 05:
That's my question.

[01:08:59] Speaker 07:
That under Chevron 2, this court said in Pettit,

[01:09:03] Speaker 07:
that the interpretation being offered needs to be consistent with the statutory purpose and the legislative history.

[01:09:11] Speaker 07:
And I submit that it is neither.

[01:09:14] Speaker 07:
It is not consistent with the statutory purpose because the purpose of this statute was to impose a ceiling and a ceiling that would affect costs.

[01:09:24] Speaker 07:
This court said that's the central focus of the PAEA.

[01:09:27] Speaker 05:
But suppose I don't agree with you about that.

[01:09:29] Speaker 05:
Suppose I don't think the statute

[01:09:32] Speaker 05:
clearly requires the commission to regulate in its post 10 year period subject to the price cap.

[01:09:44] Speaker 05:
Suppose I don't agree with that.

[01:09:48] Speaker 05:
Why is what the commission's interpretation unreasonable?

[01:09:52] Speaker 05:
That's my question.

[01:09:53] Speaker 05:
You can't answer my question by saying the statute's clear.

[01:09:57] Speaker 07:
This is a no i'm not i'm not telling you the statutes clear in answering the question i'm telling you that the purpose of the statute was clear and this court said so in am versus PRC it said and i'm quoting.

[01:10:12] Speaker 07:
the central focus of the statute was tightly restricting postal service rate increases and increasing efficiency.

[01:10:20] Speaker 05:
That was the central argument.

[01:10:22] Speaker 05:
Did we say that about the post tenure reconsideration?

[01:10:26] Speaker 07:
No, but you said that about the statute and the post, the tenure review is part of the statute.

[01:10:33] Speaker 02:
Don't you have a better answer to Judge Tatel's question about why you should not defer?

[01:10:41] Speaker 02:
One argument

[01:10:43] Speaker 02:
Unfortunately, you haven't made it.

[01:10:45] Speaker 02:
is that, well, the commission thought it was clear and that's the only thing they did was engage in statutory analysis.

[01:10:53] Speaker 02:
They didn't get to the next step of Chevron and balance the various policies involved.

[01:10:58] Speaker 02:
And so you don't defer to an agency under step two of Chevron unless the agency engages in that sort of policy analysis.

[01:11:08] Speaker 02:
And they never did that under the interpretive portion of the commission's report.

[01:11:16] Speaker 07:
I think that's right, your honor.

[01:11:18] Speaker 07:
I also wanted to move to what I think is the second reason that I think Chevron, another reason, which would now be a third in light of what your honor has added, which is the legislative history.

[01:11:31] Speaker 07:
So the commission's lawyer just said to you that the house bill had an optional price cap.

[01:11:39] Speaker 07:
That's just not true.

[01:11:41] Speaker 07:
The house bill said,

[01:11:44] Speaker 07:
The price cap was a permanent price cap that could only be undone annually if there was a notice, opportunity to be heard, and a finding that it was reasonable, equitable, and necessary.

[01:11:58] Speaker 06:
The Senate cap said- We've addressed this already, haven't we, in my discussion with you about the power of the conference committee?

[01:12:06] Speaker 07:
We have.

[01:12:06] Speaker 07:
I just wanted to correct what the commission's lawyer just said to you, which is what they also said in their brief.

[01:12:13] Speaker 07:
which is that the House bill made the cap optional.

[01:12:16] Speaker 07:
And that's not true.

[01:12:18] Speaker 07:
The House bill had a cap, a permanent cap.

[01:12:22] Speaker 06:
That's not an issue, counsel, in all fairness.

[01:12:25] Speaker 07:
I mean, we can read the bill.

[01:12:26] Speaker 07:
Okay, your honor.

[01:12:27] Speaker 07:
I just wanted to let you know, to make that correction.

[01:12:32] Speaker 07:
And then the last thing I wanted to say, because I know I'm out of time, is the balancing question that the court has asked several questions about.

[01:12:40] Speaker 07:
And I think it really highlights

[01:12:43] Speaker 07:
why we think the price cap needs to stay in place.

[01:12:47] Speaker 07:
Because once you enter into this terrain of it's just a free-floating set of competing objectives, it defies reason that Congress would have said, we're out of the mix now.

[01:13:01] Speaker 07:
Commission, add a price cap, next year price cap plus, next year price cap plus plus, next year go back to the old system.

[01:13:08] Speaker 07:
That was the PRA, which was the cost of service regime.

[01:13:11] Speaker 07:
which is precisely what the commission's perspective seems to allow it to do.

[01:13:19] Speaker 07:
It can ignore entirely the requirements.

[01:13:22] Speaker 07:
It can ignore the limitations.

[01:13:23] Speaker 07:
It can ignore the workshare discount provisions which come after D3.

[01:13:29] Speaker 07:
And it's just a brave new world of the commission turning into the policymaker in this area, which is the role Congress has played for 230 years.

[01:13:38] Speaker 06:
All right.

[01:13:39] Speaker 06:
Thank you.

[01:13:40] Speaker 06:
Any questions?

[01:13:41] Speaker 06:
Judge Tatel, Judge Randall.

[01:13:44] Speaker 06:
All right.

[01:13:46] Speaker 06:
Council for the Postal Service.

[01:13:49] Speaker 01:
Thank you, Your Honor.

[01:13:50] Speaker 01:
I just want to point out that mailers, in their argument just now, we're talking about sort of threats to the Postal Service or serving as the connective tissue of society.

[01:13:59] Speaker 01:
And the commission found that the threat to that connective, the Postal Service serving in that capacity is a system

[01:14:07] Speaker 01:
that failed to give it a reasonable opportunity to cover its costs.

[01:14:10] Speaker 01:
And the problem we have is the commission didn't fix that problem.

[01:14:13] Speaker 01:
It partially fixed it.

[01:14:14] Speaker 01:
It did something helpful and we support that, but it didn't fix the system.

[01:14:19] Speaker 01:
The council stated that the commission was entitled to act incrementally.

[01:14:27] Speaker 01:
We don't disagree with that proposition and the abstract, but there still needed to be a plan.

[01:14:31] Speaker 01:
I mean, the commission never said in its

[01:14:34] Speaker 01:
and its orders below never said that it was acting incrementally as to cost coverage.

[01:14:39] Speaker 01:
The increment that was being deferred had to do with a totally different type of pricing authority that would have, in theory, enabled the Postal Service to actually turn profits, conditioned on engaging in certain behaviors.

[01:14:54] Speaker 01:
Of course, that was all premised on the idea that this rulemaking gave the Postal Service an opportunity to cover its costs.

[01:15:00] Speaker 01:
The commission deferred that one out of concern of trying to do too many things at once, trying to shocks and unintended consequences.

[01:15:07] Speaker 01:
But at no point did they say that cost coverage was the thing being deferred.

[01:15:13] Speaker 02:
Has Congress ever subsidized the commission within this 10-year period?

[01:15:20] Speaker 01:
Subsidize the Postal Service?

[01:15:22] Speaker 02:
Yeah, the Postal Service.

[01:15:24] Speaker 01:
We have not received an operating subsidy during this time that we

[01:15:28] Speaker 01:
The statute is always, there are certain things, free mail for the blind and overseas voting are partially subsidized in part because those are obligations that Congress or separately imposed on the Postal Service.

[01:15:45] Speaker 01:
And those are reimbursements.

[01:15:48] Speaker 01:
I mean, those are, yeah, those are reimbursements for costs actually incurred.

[01:15:51] Speaker 01:
And then there was in the last year because of expenses incurred, particularly as to COVID, there was sort of a reimbursement of those specific expenses.

[01:16:03] Speaker 01:
As to the statutory argument, I mean, I'll leave it obviously to the commission, but it isn't true.

[01:16:13] Speaker 01:
I think there was a suggestion in here that the commission never argued that if the statute's ambiguous, it's entitled to deference.

[01:16:20] Speaker 01:
That's in fact, it did make that.

[01:16:23] Speaker 01:
It pointed, it said that in its final order and its earlier orders, it made a sort of chevron step to a type of analysis.

[01:16:31] Speaker 06:
And even- I think we were referring to the brief before us.

[01:16:35] Speaker 01:
Oh, fair enough.

[01:16:36] Speaker 01:
Well, even then, the commission's brief on appeal says the mailers cannot prevail even assuming that D3 is susceptible to multiple interpretations.

[01:16:45] Speaker 01:
At a minimum, the commission's interpretation is a reasonable reading of the statute.

[01:16:48] Speaker 06:
Right.

[01:16:49] Speaker 01:
All right.

[01:16:49] Speaker 06:
Anything further, counsel?

[01:16:51] Speaker 01:
No, that's it.

[01:16:51] Speaker 01:
Thank you, your honors.

[01:16:52] Speaker 06:
Thank you, counsel.

[01:16:54] Speaker 06:
Most helpful, the court will take the case under advisement.