[00:00:00] Speaker 04: Face number 23-1006, United Marshals Service Inc. [00:00:04] Speaker 04: Petitioner versus Postal Regulatory Commission. [00:00:07] Speaker 04: Ms. [00:00:07] Speaker 04: Sullivan for the petitioner, Mr. Shee for the respondents, Mr. Longstrap for the interviewees. [00:00:13] Speaker 06: Good morning, Council. [00:00:15] Speaker 06: Ms. [00:00:15] Speaker 06: Sullivan, please proceed when you're ready. [00:00:21] Speaker 04: Good morning, Your Honors, and may it please the Court, Kathleen Sullivan for UPS. [00:00:26] Speaker 04: We are back before this Court again because the Postal Regulatory Commission has once again defied its obligation under 39 USC 3633A3 to ensure that, quote, competitive products cover an appropriate share of the institutional costs of the Postal Service. [00:00:46] Speaker 04: This Court remanded in its April 2020 decision [00:00:50] Speaker 04: because the PRC had failed in its prior order to consider institutional costs that are, again, I quote from 39 USC 3633B, uniquely or disproportionately associated with any competitive products. [00:01:07] Speaker 04: The remand goes back where three years and 250 pages later, and we're in the exact same position we were before. [00:01:15] Speaker 04: Why? [00:01:15] Speaker 04: Because the Postal Regulatory Commission said, okay, we had the remand. [00:01:20] Speaker 04: And we now find, again, that there are no, not a single dollar, no disproportionately associated costs. [00:01:29] Speaker 04: That is contrary to the statute, and it's contrary to the court's prior order, and another remand is required. [00:01:35] Speaker 04: And I'd like to begin with why the new order is contrary to the statute's text. [00:01:40] Speaker 04: And for that, I really don't need to go beyond the court's previous order in the April 2020 decision. [00:01:46] Speaker 04: Section 3633A3, which incorporates the definition, the requirement of 3633B that you look at disproportionately associated costs, that cannot be subsumed by a 3633A2 analysis. [00:02:04] Speaker 04: So even if the PRC has done its cost attributable analysis, [00:02:10] Speaker 04: under 36.3A2, this court said the statute has two separate requirements. [00:02:16] Speaker 04: You have to look at the cost attributable. [00:02:18] Speaker 04: And then separately, because 36.33A3 is not subsumed, you have to look at the cost. [00:02:25] Speaker 03: So Russell, on the statutory interpretation question, before getting into what exactly the commission did, [00:02:31] Speaker 03: would you agree that it would be okay and consistent with our remand opinion? [00:02:37] Speaker 03: If what they had said was number one, in theory, the A3 costs could be broader, just requires an association and not causation. [00:02:48] Speaker 03: And then point two, [00:02:49] Speaker 03: We've really tried, but we just can't find a non arbitrary way of measuring costs that fall within that difference. [00:02:58] Speaker 03: And so that's the reason we're not identifying costs in that bucket. [00:03:02] Speaker 03: Now, I suspect you certainly disagree. [00:03:03] Speaker 03: That's what they did. [00:03:04] Speaker 03: But if it was what they had done, would that be okay? [00:03:08] Speaker 04: Yes, your honor. [00:03:09] Speaker 04: If that's what they had done, that would be okay. [00:03:11] Speaker 04: If there's separate legal requirements and the postal regulatory commission had gone back in earnest using the best economists in America that it has access to, and had done an actual effort to discern, identify, and quantify costs disproportionately associated, then they would have an escape hatch from the 2020 order. [00:03:32] Speaker 04: But that's not what they did. [00:03:33] Speaker 01: And that's just in terms of our language and our prior opinion. [00:03:36] Speaker 01: Yes, your honor. [00:03:38] Speaker 01: hypothetical scenario what was accounted for by our phraseology when we said [00:03:45] Speaker 01: Not only has the commission not adequately explained why the statutory phrases at issue here have similar meanings, but nor has it demonstrated that these statutory categories, even if distinct in meaning, nevertheless coincide in application. [00:03:55] Speaker 04: That's exactly correct. [00:03:56] Speaker 04: And they haven't done that this time either. [00:03:58] Speaker 04: So even though you afforded them the opportunity to show that disparate meaning as a matter of theory, but practical convergence as a matter of fact, there is no such showing in this record. [00:04:10] Speaker 04: And I'd like to point to some key kind of smoking admissions [00:04:14] Speaker 04: in the order that proved my point, that this was not an empirical inquiry. [00:04:18] Speaker 04: It was an Ipsa Dixit. [00:04:20] Speaker 04: If we look, for example, to page the order statement at, well, let's start with their bottom line. [00:04:27] Speaker 04: The bottom line is at Joint Appendix, page 1132, and I'll quote, the PRC says, there are no costs uniquely or disproportionately associated with competitive products [00:04:38] Speaker 04: other than those that are also classified as attributable. [00:04:41] Speaker 04: So that's the bottom line, 1132. [00:04:43] Speaker 04: And if you look to nothing else on 1132, look to the site to JA 500. [00:04:50] Speaker 04: So this is a site to a prior order. [00:04:53] Speaker 04: And what's happening at JA 1132 is they say, there is only one economically sound, to go back Judge Garcia to your point, they say there's only one economically sound way [00:05:07] Speaker 04: to do cost allocation. [00:05:10] Speaker 04: And that's to rely on our A3633A2 methodology. [00:05:16] Speaker 04: That is reliably identified causal relationships. [00:05:19] Speaker 04: So what the Ipsy Dixiton 1132 is, and let me read it to you because it's quite stunning, JA500, which is referred to on A1132, says, the only economically sound method, the only economically sound method in the universe, [00:05:37] Speaker 04: I'm sorry, I added that. [00:05:38] Speaker 04: To measure the association of costs with products is through activity-based costing, which is based on reliably identified causal relationships. [00:05:46] Speaker 04: So there's HIPAA-DICS at number one. [00:05:48] Speaker 03: So that's a good example. [00:05:50] Speaker 03: Why can't that be read to say there is currently no economically sound method to measure that cost? [00:05:56] Speaker 03: And I would point out that when the commission discusses this issue, I might get the exact pages wrong, but it's around page 105, [00:06:03] Speaker 03: There are a lot of comments that come in and UPS has a method, but that's arbitrary. [00:06:08] Speaker 03: And they're really going around this question. [00:06:12] Speaker 03: Is there another method? [00:06:13] Speaker 04: Yes, Your Honor. [00:06:14] Speaker 04: We think it's contrary to statute and it would certainly be arbitrary and capricious to say there is no other method. [00:06:22] Speaker 04: Cost allocation is done all the time. [00:06:24] Speaker 04: You have the report of the prior utility regulators. [00:06:27] Speaker 04: Private companies allocate costs all the time. [00:06:29] Speaker 04: If you can't find a perfect method, you look for a pretty good method. [00:06:33] Speaker 04: And we cite numerous cases to the court, this court's president saying, if you don't find a perfect method, uncertainty is not enough. [00:06:42] Speaker 04: Net Coalition, American Hospital Association, Wisconsin versus EPA, [00:06:46] Speaker 04: Your honor's prior test is, you have to show it's impossible. [00:06:51] Speaker 04: So Judge Garcia, even if they quibble with our tests and they think some other tests are not so great, they had come close to meeting the impossibility bar. [00:06:59] Speaker 04: And I want to make one more point about the Ipsa Dixit, your honor, and this is a crucial other record site in answer to your question. [00:07:06] Speaker 04: If you look at Joint Appendix page 1170, this is an extremely important page. [00:07:10] Speaker 04: This is page, I believe 100 of the order, [00:07:13] Speaker 04: This says joint costs, costs that are simultaneously incurred by the distribution of market dominant and competitive products. [00:07:27] Speaker 04: And this is the key language on JA 1170. [00:07:29] Speaker 04: It is their very nature that such a relationship does not exist. [00:07:34] Speaker 04: In other words, can there be a relationship, disproportionate association between a competitive product [00:07:42] Speaker 04: and joint costs, which are captured in the institutional bucket. [00:07:46] Speaker 04: And they say, no, as a matter of theory, it cannot exist. [00:07:50] Speaker 04: That's wrong. [00:07:51] Speaker 04: The whole point of 3633A3 is you have to look at that great big institutional bucket, which is almost half the cost of the Postal Service. [00:08:02] Speaker 04: This court approved in the 2018 decision the cost attributable methodology. [00:08:07] Speaker 04: We're not quibbling with that here. [00:08:08] Speaker 04: That was an A2 case. [00:08:10] Speaker 04: But that methodology is so conservative. [00:08:12] Speaker 04: It looks to reliably identified causal relationships that it leaves this gigantic institutional cause buckets. [00:08:18] Speaker 04: And 33A3 says, go into that. [00:08:23] Speaker 04: And 3633B says, go into it and look for disproportionately associated costs. [00:08:28] Speaker 01: Can I ask this question as a follow up to... Go ahead, Judge Rogers. [00:08:34] Speaker 06: Please, Judge Rogers. [00:08:34] Speaker 05: Sorry, is that the Chief Judge? [00:08:38] Speaker 06: Please go ask your question, Judge Rogers. [00:08:42] Speaker 05: Thank you. [00:08:43] Speaker 05: Council, this is Judge Rogers. [00:08:45] Speaker 05: I'm on audio only because of an internet problem. [00:08:49] Speaker 05: In any event, what I'm not totally clear about is why should this court, following up on Judge Garcia's question, read what the commission has said in a way that [00:09:07] Speaker 05: As I understand, your response does not indicate that it went back to square one and redid all of its empirical analysis relying on studies, et cetera. [00:09:27] Speaker 05: Why is this court not required to look at the current order in light of the full record that was before [00:09:38] Speaker 05: the commission. [00:09:42] Speaker 04: Good morning, Judge Rogers. [00:09:43] Speaker 04: It's wonderful to hear your voice and I would like to answer your question as follows. [00:09:48] Speaker 04: The order must be reasoned and reasonably explained and saying you did a lot of studies is not enough and staying that you have quibbles with the commenters proposed methodologies is not enough. [00:10:01] Speaker 04: You have to show how you, the Postal Regulatory Commission, tried a regression and it didn't work. [00:10:07] Speaker 04: We tried another form of econometric analysis and it didn't work. [00:10:12] Speaker 04: I would challenge my friend on the other side, Mr. Shee, to show you a single page anywhere in the record where the Postal Regulatory Commission names an econometric regression or other approach that it tried to allocate the costs and the institutional cost buckets either to competitive or [00:10:31] Speaker 04: or market dominant, it simply did not do that. [00:10:35] Speaker 04: So Judge Rogers, they can quibble with a lot of other studies, but the fact that you quibble with our studies goes only to how to perform a regression. [00:10:43] Speaker 04: Our legal point is that something, a regression or an analysis must be performed under 33A coupled with 3631B, and they didn't do it. [00:10:52] Speaker 01: They do not name it. [00:10:53] Speaker 01: Can I ask a question about that? [00:10:57] Speaker 05: Let me follow up. [00:10:58] Speaker 05: So your view is that this court, [00:11:00] Speaker 05: must interpret our previous opinion to require more than, quote, merely considering. [00:11:10] Speaker 05: You're saying, as I understand it, that our prior opinion required more than consideration in the sense of, yes, we looked at this, but actual empirical studies [00:11:27] Speaker 04: Yes, your honor, that is our position. [00:11:29] Speaker 04: We think whatever the meaning of consider is in the statute and in this court's prior order, it cannot be satisfied by saying, well, we don't think those costs exist. [00:11:38] Speaker 04: If you don't think there are any costs associated disproportionately with competitive products, with packages, [00:11:47] Speaker 04: And that defies common sense because, of course, you need bigger trucks to deliver packages. [00:11:53] Speaker 04: You need different scanners to scan packages. [00:11:56] Speaker 04: There's a host of costs we identified, which, as a matter of common sense, would seem to be disproportionately associated with competitive products. [00:12:03] Speaker 04: That means more associated than not. [00:12:06] Speaker 04: It doesn't have to be reliably identified causal relationships. [00:12:09] Speaker 04: been there done that in 2018 we're not arguing about the attribution methodology we're saying that congress told you to do two things and you only did the first and then you said the second is subsumed in the first so there's nothing wrong conceptually with an approach under which the commission would say [00:12:25] Speaker 01: Yes, there's a conceptual distinction between these two and yes, there may well be these costs, but you're to paraphrase your argument, you're wrong to say that there's an impossibility threshold because there's an economic soundness overlay. [00:12:40] Speaker 01: So what we what we mean by impossible is it's impossible to divine those costs and assign them appropriately because not because they don't exist, [00:12:48] Speaker 01: but because there's no economically sound way to do it. [00:12:50] Speaker 01: That's right, Your Honor. [00:12:51] Speaker 01: And you'd be OK with that. [00:12:53] Speaker 04: Well, Your Honor, we think I'm into my rebuttal time. [00:12:56] Speaker 04: We'll make sure you have rebuttal time. [00:12:59] Speaker 04: Is it acceptable for me to answer that question? [00:13:01] Speaker 04: Yes. [00:13:01] Speaker 04: And there were a couple of more points I just wanted to leave you with. [00:13:05] Speaker 04: So I'm asking for additional time, but you stop me whenever you want to. [00:13:08] Speaker 01: Sure. [00:13:08] Speaker 01: We'll make sure you have rebuttal time, so you're welcome to answer that question. [00:13:11] Speaker 04: Thank you very much, Your Honor. [00:13:12] Speaker 04: So, the answer to the first question is, it's conceptually fine to say, Congress told us to do two things, but we've really tried the second and it cannot be done. [00:13:23] Speaker 04: That has to meet the impossibility threshold. [00:13:25] Speaker 04: It is not met. [00:13:26] Speaker 04: It is not met on this record. [00:13:27] Speaker 04: Why? [00:13:28] Speaker 04: Because economic soundness, and I want to be, I think I wasn't that clear on the importance of Joint Appendix 1170. [00:13:34] Speaker 04: Let me try it again. [00:13:36] Speaker 04: The PRC said anything that is economically sound, an economically sound analysis is coterminous, synonymous with the A2 incremental cost test, reliably identified causal relationships. [00:13:54] Speaker 04: They say it's the same thing. [00:13:55] Speaker 04: In other words, they say there's no other method in the universe [00:13:58] Speaker 04: that could ever determine the allocation of costs between competitive and market dominant products, other than the A2 test, which has now been amended to be the incremental cost. [00:14:10] Speaker 03: To me, the dispute then comes down to whether we agree with everything you just said, except that, unless we read it to say, no such method exists today, right now, and we really tried to figure it out. [00:14:22] Speaker 04: Yes, well, but Your Honor, I want to just qualify that a little bit. [00:14:27] Speaker 04: Congress doesn't enact. [00:14:30] Speaker 04: statutory provisions idly. [00:14:32] Speaker 04: It put A3 in on top of A2 and A1. [00:14:36] Speaker 04: And yet the Postal Regulatory Commission's purposes, eh, never mind. [00:14:40] Speaker 04: They really didn't mean it. [00:14:42] Speaker 04: And if you're going to tell Congress it didn't mean that you have to perform a regulatory analysis that you shall perform under a mandatory provision of the statute, you better have a pretty darn good record of impossibility. [00:14:53] Speaker 04: And I defied the Postal Regulatory Commission before this court today to point to a single place where they said, [00:14:58] Speaker 04: We tried a test different from UPS's regression, and it didn't work. [00:15:03] Speaker 04: No economist in the universe would bless it. [00:15:05] Speaker 04: They didn't come close to meeting that. [00:15:06] Speaker 04: But Your Honor, I think what's telling is they fall back on other arguments, which I'll dispatch very quickly. [00:15:12] Speaker 04: One, they say, well, we have the greater power to eliminate all appropriate share. [00:15:18] Speaker 04: And that includes the lesser power to set the appropriate share at whatever level we want. [00:15:22] Speaker 04: That's easy for this court to reject. [00:15:24] Speaker 04: That's certainly not what Congress intended by saying they could eliminate [00:15:28] Speaker 04: the appropriate chair. [00:15:29] Speaker 04: Maybe you could if there were no packages and you had no competitive products to allocate costs among. [00:15:37] Speaker 04: Maybe you could do that if the post-regulatory commission got really good at attribution and attributed 100% of its costs. [00:15:47] Speaker 04: But the eliminate proviso is inapplicable where you're throwing 40% and soon 50% of your costs over into the unattributed institutional cost bucket. [00:15:56] Speaker 04: And then last they say, Your Honor, and this one, I really think bears special mention because it's really so surprising. [00:16:03] Speaker 04: It's a surprisingly defiant thing for a regulatory body to say. [00:16:07] Speaker 04: They say, well, market conditions are fine. [00:16:10] Speaker 04: We can trust [00:16:12] Speaker 04: the Postal Service to take care of this because it turns out right now, you know, the formula makes them allocate 10% or maybe 11% of the costs to competitive, the institutional costs to competitive products. [00:16:26] Speaker 04: But we looked at what the Postal Service was doing and last year they actually allocated 39.2% of institutional costs to competitive products. [00:16:36] Speaker 04: So that's fine. [00:16:38] Speaker 04: If men were angels, we wouldn't need government. [00:16:41] Speaker 04: And if regulated entities could be trusted to look after their own obligations through their own incentives, we wouldn't need regulatory bodies. [00:16:49] Speaker 04: So it's really quite surprising that you would say there's no need to apply the formula. [00:16:54] Speaker 04: So in sum, let me close here. [00:16:57] Speaker 04: I'll try to be brief, but I want to go back to 2018 because it's very important here in this courtroom before the panel in 2018. [00:17:08] Speaker 04: Council for the Post Regulatory Commission, Mr. Shee, represented to the core. [00:17:14] Speaker 04: This is the oral argument audio at minute 39. [00:17:17] Speaker 04: So please approve our A2 methodology for attributable costs, cost attributable. [00:17:23] Speaker 04: And don't worry that that's gonna create a competitive deficit that's gonna create an unlevel playing field and lead the Postal Service to under price package shipments. [00:17:32] Speaker 04: Don't worry about that because there's a rulemaking going on. [00:17:36] Speaker 04: There's the A3 rulemaking going on. [00:17:38] Speaker 04: And what Mr. Shi told the court on behalf of the commission at that time, is the A3 rulemaking is going to make sure that unattributed costs that are disproportionately associated with competitive products will not just, and I quote, vanish into the ether. [00:17:56] Speaker 04: In other words, we're going to find a positive quantum of institutional costs that have to [00:18:02] Speaker 04: that competitive products cause and therefore have to cover. [00:18:09] Speaker 04: The formula came back with the same formula, 10%, 11%, not 39.2%, not 50%. [00:18:15] Speaker 04: And that was an important representation to this court because, Your Honor, this court wrote in the 2020 opinion, this is at 890 federal F third at 1067, [00:18:27] Speaker 04: This court has no reason to doubt that the requirement that competitive products cover a share of institutional costs will adequately ameliorate any competitive deficit left by the PRC's approach to cost attribution. [00:18:42] Speaker 04: We're here today because that promise was not met. [00:18:46] Speaker 04: No amelioration. [00:18:47] Speaker 04: There is a competitive deficit. [00:18:49] Speaker 04: It defies the purpose of the statute, which is to level the playing field, and therefore it's contrary to law. [00:18:55] Speaker 03: One last question, just about the competitive conditions. [00:18:58] Speaker 03: You've said a few times there's a competitive deficit. [00:19:02] Speaker 03: And one way of thinking about prevailing market conditions and what the commission looked at here was, is there an indication in the market that the Postal Service is underpricing its product? [00:19:12] Speaker 03: So in that lens, the data, for example, that all three market participants have consistently been raising prices above inflation, et cetera, et cetera, seems a compelling indication [00:19:23] Speaker 03: that it might be justified for the commission to do exactly what you described, which is we're going to hang back until there's some indication of prices being too low. [00:19:31] Speaker 03: And my question is to you, what's the best indication in the record that USPS is actually underpricing its products? [00:19:42] Speaker 04: Well, first, we don't think that's the thing we have to prove. [00:19:46] Speaker 04: We have to show is that the Postal Regulatory Commission is failing to require that [00:19:52] Speaker 04: the postal service come and that competitive products cover their costs. [00:20:00] Speaker 04: But I want to, we don't think we have to meet the test, right? [00:20:04] Speaker 04: Let me back to come back one step. [00:20:07] Speaker 03: Certainly if they were ignoring disproportionately associated costs. [00:20:11] Speaker 03: I'm trying to ask separately just about the provision on. [00:20:14] Speaker 04: So 3633B says consider two things, competitive conditions and consider disproportionately associated costs. [00:20:21] Speaker 04: The answer to why the competitive market piece of 3633B doesn't excuse the failure to let competitive products not cover their costs through not finding any disproportionate association [00:20:35] Speaker 04: The answer to that is one factual. [00:20:39] Speaker 04: It's undisputed that the Postal Service still has enormous financial losses. [00:20:44] Speaker 04: You can take judicial notice of last year's number, $6.9 million in financial losses. [00:20:49] Speaker 04: It's difficult to square the proposition that the market is functioning in a healthy manner with those financial losses. [00:20:56] Speaker 04: And the Post Regulatory Commission says in the order that it doesn't have to consider financial losses, which is [00:21:01] Speaker 04: Surprising, Judge Garcia, if they were actually considering competitive market conditions, you would think financial losses would be relevant to that. [00:21:08] Speaker 04: JA 1102, appropriate share as a discretionary pricing review, not a costing exercise. [00:21:14] Speaker 04: And again, JA 1214 to 15, it says financial losses are irrelevant, irrelevant. [00:21:21] Speaker 04: Financial losses are irrelevant to appropriate share determination. [00:21:24] Speaker 04: So we think it's arbitrary and capricious to say you're looking at competitive market conditions, look at a couple of price increases, but ignore the losses. [00:21:33] Speaker 04: We think that a remand order should clarify that financial losses should be considered as part of the appropriate share analysis and that 3633B by its terms compels that by the reference to competitive conditions. [00:21:46] Speaker 04: But Your Honor, the second answer is really, again, that's not through any work of the Post Regulatory Commission. [00:21:54] Speaker 04: It's undisputed here that the Postal Service, remember, the Postal Regulatory Commission says competitive products have to cover maybe 9%, 10%, 11%. [00:22:04] Speaker 04: Maybe if this dynamic formula keeps really working, we'll get to 12%. [00:22:08] Speaker 04: But the Postal Service is already finding that competitive products cover 39.2%. [00:22:14] Speaker 04: So the Postal Regulatory Commission's formula is not helping out with these competitive conditions. [00:22:22] Speaker 04: And that comes back to my argument about trust. [00:22:24] Speaker 04: They're saying, trust the Post Service. [00:22:27] Speaker 04: It's going to be a profit maximizer that's inconsistent with financial losses. [00:22:31] Speaker 04: But the Postal Regulatory Commission's job is to ensure, not to trust, but to ensure that the Postal Service will handle competitive products in a way that makes them cover their costs. [00:22:45] Speaker 04: And all that is in the service of a level playing field. [00:22:51] Speaker 04: It's rather astonishing that the commission says, well, Congress got rid of the break-even scheme. [00:22:58] Speaker 04: Yeah, the break-in scheme said they couldn't make a profit, but it didn't say they could make a loss. [00:23:03] Speaker 04: And if institutional costs are half the costs, and if competitive products are 40% by the Postal Service's own reckoning of that institutional cost bucket, and the formula says competitive products have to cover 9% to 11% of the loss, [00:23:19] Speaker 04: That is an arbitrary and capricious formula, even if it's not contrary to law. [00:23:23] Speaker 04: We've suggested various things that they could do that would not be arbitrary and capricious. [00:23:26] Speaker 04: You don't have to accept our proposal. [00:23:28] Speaker 04: We say start at 39.2%. [00:23:31] Speaker 04: Take the attributable cost share that represents competitive products, 43.5%. [00:23:37] Speaker 04: It's fine if you don't like the proposals, but we would ask at a minimum that the court remand with the instruction that [00:23:45] Speaker 04: You can't have a null set for disproportionately associated costs. [00:23:49] Speaker 04: You can't come back five years and two rulemakings later and say, yeah, disproportionately associated costs. [00:23:55] Speaker 04: Congress wanted us to find them, but I'm sorry. [00:23:58] Speaker 04: We tried. [00:23:58] Speaker 04: We didn't try very hard, but we think it's by definition impossible. [00:24:02] Speaker 04: We didn't show that it's practically impossible. [00:24:04] Speaker 04: That's not good enough. [00:24:05] Speaker 04: They've got to find something more than a null set they should take into account financial losses. [00:24:10] Speaker 04: And they should follow last point is 3922B, very important adjacent provision of the statute that this court should interpret as part of the structure. [00:24:20] Speaker 04: These provisions all work together. [00:24:22] Speaker 04: And 3922B says, you must allocate appropriately total institutional costs [00:24:31] Speaker 04: between competitive and market dominant products. [00:24:35] Speaker 04: That means 3922 and 3633A3 and 3631B are the mechanism [00:24:43] Speaker 04: by which you can do that. [00:24:45] Speaker 04: We've cited on page 41 of our brief, a prior Postal Commission order that says it's the mechanism by which you do it. [00:24:54] Speaker 04: If you're not allocating costs between competitive and market dominant products, you're not satisfying 3922B, 3633A3, 3631B, contrary to law, arbitrary and capricious, [00:25:07] Speaker 04: It's a big thing to ask you to remand again, but we would respectfully ask that you again remand with guidance this time so that we don't judge Rogers have another futile exercise in saying we looked at other studies we didn't like. [00:25:19] Speaker 04: The Postal Commission has to show that there's a study it performed that satisfies the impossibility test. [00:25:26] Speaker 04: Thank you, Your Honor. [00:25:28] Speaker 06: Thank you, Council. [00:25:31] Speaker 06: Mr. Shee will have from you now. [00:25:40] Speaker 00: May it please the court, Mike Shi, for the commission. [00:25:44] Speaker 00: Petitioners just made what I think is a fairly remarkable admission from the podium. [00:25:48] Speaker 00: Because petitioner has just conceded that the bottom line of the commission's order is both lawful and consistent with this court's remand decision in 2020, just as long as the commission explained itself adequately. [00:26:00] Speaker 00: So I think the dispute now is relatively narrow. [00:26:03] Speaker 00: And it focuses on whether the commission has itself explained its reasoning. [00:26:09] Speaker 00: And you'll find, if you have just even a cursory look at the pages that the other side cites, that their assertions of Ipsy Dixit are just that, Ipsy Dixit. [00:26:19] Speaker 00: So on the so-called smoking gun page of JA 1170, they cite a sentence in the middle of the paragraph, but they ignore the sentence just two ones down that says detailed analysis. [00:26:31] Speaker 00: supports the commission's conclusion that it cannot reasonably estimate which portion of unattributed infomarginal costs are more related to competitive products than market-dominant products, as estimation implies, even a minimal level of accuracy and would be arbitrary. [00:26:46] Speaker 00: And if you look at the commission's actual reasoning, as opposed to the cherry-picked statements that just sum up the commission's conclusion, you'll see evidence of this very deep consideration. [00:26:56] Speaker 00: A very good example comes from the discussion of trucks. [00:27:01] Speaker 00: And so this is the other side's leading example of how the commission's methodology just gets it wrong. [00:27:06] Speaker 00: The commission failed to do consideration. [00:27:09] Speaker 00: Because UPS points to a photograph of a mail truck in its brief and says, look, these trucks are huge. [00:27:15] Speaker 00: So that must mean that every dollar spent on these trucks or basically every dollar spent on these trucks, a big proportion of the dollar spent on these trucks, they must be uniquely or disproportionately related to competitive products that commission aired by refusing to consider them. [00:27:30] Speaker 00: And as the commission pointed out, it's nowhere close to that simple. [00:27:34] Speaker 00: So the discussion begins on page 1260 of the Joint Appendix, where the commission acknowledges that UPS is right in some sense. [00:27:43] Speaker 00: The mail trucks have got to be a little bit bigger if they want to carry a lot of packages. [00:27:47] Speaker 00: But you know, so that, of course, is uniquely and disproportionately associated with competitive products. [00:27:52] Speaker 00: But then the commission went on to say that's already captured by the existing cost attribution methodology and is indeed considered an attributable cost that male products have to bear if they're competitive. [00:28:03] Speaker 00: And that's because as the commission went on to say, quote, the difference between the depreciation cost of a vehicle size to deliver only market dominant products compared to a fleet size to deliver both market dominant and competitive products, that's at same page, J860, that is the very definition of what is a cost attributable. [00:28:23] Speaker 00: And so, you know, the thing that UPS says these trucks are sized to do, well, we're already taking that into account when determining what is a cost attributable to competitive products. [00:28:33] Speaker 01: So you don't disagree with the way that the inquiry was framed by the other side, right? [00:28:39] Speaker 01: Which is that, yes, in theory you could, in both in theory and in fact, there's a difference between what's already been attributed and what could be attributed. [00:28:51] Speaker 01: The question becomes, is there a way to attribute what's left over that works? [00:28:57] Speaker 00: In theory, Your Honor, yes. [00:28:58] Speaker 00: And I want to be careful because I don't want to accept all of my friend's premises. [00:29:02] Speaker 00: What I will say is that in the 2020 decision the court held, the commission is free on remand to quote, explain why these two statutory phrases have the same practical reach despite the use of different language. [00:29:14] Speaker 00: That's a 1049 of the opinion. [00:29:16] Speaker 00: And so the commission quoted that language and then proceeded to do exactly that. [00:29:21] Speaker 00: And the commission said, well, let's take a look at every single one of these costs. [00:29:24] Speaker 00: well a big chunk of them we're going to say are cost attributable and so those are by definition uniquely or disproportionately related to competitive products and so it's you know those however we're not going to consider for purposes of setting the appropriate share of institutional cost because they're [00:29:42] Speaker 00: not institutional costs. [00:29:43] Speaker 00: By definition, they are instead cost attributable. [00:29:46] Speaker 00: And there is no such thing, I suppose, as Schrodinger's costs. [00:29:49] Speaker 00: A cost cannot be in two buckets at once. [00:29:51] Speaker 00: And so having said that, then the commission looked at all of these institutional costs that are left over. [00:29:57] Speaker 00: And the commission said, look, in 2020, the court held that, in theory, some of these costs might be uniquely or disproportionately associated with competitive products. [00:30:05] Speaker 00: The commission accepts that. [00:30:08] Speaker 00: But the commission says, based on what we know now, and we have high confidence in our econometric tools, [00:30:15] Speaker 00: We don't think we can do that. [00:30:18] Speaker 00: And we don't think that there is any sort of way to establish a meaningful association, much less a meaningful, unique or disproportionate association between any cost in the institutional cost bucket on the one hand and a competitive product or all competitive products on the other. [00:30:33] Speaker 03: I think that's what you just said is what [00:30:36] Speaker 03: UPS, at least as I understand it, is disagreeing with. [00:30:40] Speaker 03: And that they say, we should ask you, and so I'm going to. [00:30:44] Speaker 03: Where in the appendix do you actually explain that you tried x or y econometric method or this regression or that regression and found it not reliable to measure this difference between association and a causal relationship? [00:31:02] Speaker 00: So I have a couple of answers to that, Your Honor. [00:31:04] Speaker 00: And the first is I just want to correct a little bit of opposing counsel's question. [00:31:08] Speaker 00: Because opposing counsel says the commission required some reliable methodology. [00:31:12] Speaker 00: That's not what the commission said. [00:31:13] Speaker 00: What the commission said was instead just quoting directly from this court's opinion, there still needs to be some meaningful association. [00:31:20] Speaker 00: And so the commission was not, in fact, conflating for purposes of figuring out what is unique or disproportionately associated [00:31:26] Speaker 00: of the reliably identified causal relationship test on the one hand, and what this court characterized as the requirement that there be a unique or disproportionate association demonstrated by some meaningful way. [00:31:38] Speaker 00: But having said that, I think the other thing I should point out at the outset is the other side thinks that some regression is required of the commission. [00:31:49] Speaker 00: That appears nowhere in the 2020 remand order. [00:31:53] Speaker 00: That appears nowhere in the statute. [00:31:55] Speaker 00: And that's, in fact, quite far removed from most principles of administrative law, where one doesn't look at a statute and says, the commission must perform economic analysis of this sort or that sort. [00:32:08] Speaker 00: And it's certainly not apparent on the face of the PAEA, which gives the commission vast discretion to consider these costs as the commission sees appropriate. [00:32:16] Speaker 00: And so. [00:32:19] Speaker 03: I suppose the question is the NPRM and the final rule do repeatedly say no methodology exists. [00:32:28] Speaker 03: And then the next sentence sort of moves on. [00:32:30] Speaker 03: Right. [00:32:31] Speaker 03: And so if we wanted to look for the proof that no methodology exists, are you saying we should take the commission's word for it? [00:32:39] Speaker 03: Or is there something concrete in the analysis that we can look to? [00:32:43] Speaker 00: So there's a lot that's concrete. [00:32:45] Speaker 00: And so the analysis takes place at two levels. [00:32:48] Speaker 00: One is the Commission's qualitative explanation for why its conclusion was correct in general with respect to the category of institutional costs generally. [00:32:56] Speaker 00: And the second is when the Commission invited commenters to propose costs that they thought the Commission's method, which was announced in the NPRM after remand, was wrong. [00:33:06] Speaker 00: So the commission recognized UPS, other commenters might disagree with the way we've thought about this question. [00:33:12] Speaker 00: So come tell us what costs you think are uniquely or disproportionately associated. [00:33:17] Speaker 00: We're going to consider them too. [00:33:18] Speaker 00: So to begin with the general answer, Your Honor, the commission's qualitative explanation for why there isn't such a relationship and why it makes sense for the commission to conclude what it did is because the costs in the institutional cost bucket are [00:33:33] Speaker 00: related to both the production of competitive products and production of market dominant products. [00:33:39] Speaker 00: And so the commission then said, as a matter of the tools we have available right now, we can't disaggregate how much is attributable to which and how much is attributable to the other. [00:33:51] Speaker 00: And so there is no meaningful way to say that any given institutional cost bears the requisite unique or disproportionate association to warrant consideration in this way. [00:34:02] Speaker 00: And so that's the justification that the commission gave and the examples that it cited. [00:34:07] Speaker 03: So the statements that say, once we have this bucket of unattributed inframarginal costs, we've studied them. [00:34:14] Speaker 03: And basically, by definition, they are equally associated with both lines of products. [00:34:19] Speaker 00: So at this point, that's right, your honor. [00:34:22] Speaker 00: It's impossible to say right now that anything in that bucket is meaningfully uniquely or disproportionately associated with competitive products. [00:34:30] Speaker 00: And so that was the commission's top line conclusion. [00:34:32] Speaker 00: But then the commission said, we recognize that many people disagree. [00:34:36] Speaker 00: UPS obviously disagrees. [00:34:38] Speaker 00: And so I would point the court to, [00:34:42] Speaker 00: the discussion basically beginning at JA 1259 to 63, where the commission talks about trucks. [00:34:51] Speaker 00: UPS says that a lot of truck costs are uniquely or disproportionately associated. [00:34:55] Speaker 00: And the commission rebutted that in detail. [00:34:58] Speaker 00: And the other side's response reply brief doesn't really have much of an answer to what the commission said, except to assert that UPS continues to disagree with the commission's analysis. [00:35:08] Speaker 00: The same goes with mail carriers, which the Commission discussed at pages 1270 and 72 of the Joint Appendix. [00:35:14] Speaker 00: Here, too, UPS asserts that the Commission is wrong because, look, there's a whole bunch of mail carriers and a lot more costs of mail carriers are uniquely or disproportionately associated with competitive products that the Commission is willing to acknowledge. [00:35:28] Speaker 00: And the Commission here, too, goes through and explains why that doesn't make sense. [00:35:32] Speaker 00: The commission said, you know, obviously the cost of mail carriers is measured in terms of what they're spending their time on. [00:35:40] Speaker 00: And so to the extent that they're spending their time walking packages up to mailboxes, then that's of course attributable to competitive products. [00:35:46] Speaker 00: But, you know, though it is uniquely or disproportionately associated, but the commission has already put those costs into the category of cost attributable. [00:35:54] Speaker 00: So they're not institutional costs at all. [00:35:56] Speaker 00: But then there's everything else. [00:35:58] Speaker 00: Can I ask one more specific question? [00:36:00] Speaker 03: So I certainly understand this argument. [00:36:06] Speaker 03: When I was reading the NPRM on pages 5, 10 to 11 of the joint appendix, there is a statement that seems in significant tension with that story and says, to the extent that future refinements and costing methodologies occur, should those refinements result in the economically sound observation of costs uniquely or disproportionately associated with competitive products? [00:36:29] Speaker 03: Cost attribution would be updated to include those costs and it would no longer be classified as institutional. [00:36:34] Speaker 03: That's a long sentence, but it sure seems to say that. [00:36:39] Speaker 03: In our view, by definition, any future methodology that would measure any association would be thrown into the A2 or A1 bucket. [00:36:49] Speaker 03: And so this third bucket of disproportionately associated costs is a null set. [00:36:56] Speaker 03: I'm sorry to give you a pop quiz if you're not familiar with that, but does that question make sense? [00:37:01] Speaker 00: It does, Your Honor, and I am familiar with that statement. [00:37:03] Speaker 00: And I don't think it undermines the commission's analysis in two ways. [00:37:07] Speaker 00: And so with your leave, let me try to explain why. [00:37:11] Speaker 00: The first is, is this court explained in 2020? [00:37:13] Speaker 00: And this, I think, is critical. [00:37:17] Speaker 00: There is no legal requirement that there be [00:37:22] Speaker 00: as a practical matter, a cost that exists in the uniquely or disproportionately associated bucket that is not classified as an attributable cost. [00:37:33] Speaker 00: And we know that because on page 1049, the court said these two statutory phrases may have the same practical reach despite the use of different language. [00:37:42] Speaker 00: That's exactly the scenario that this court anticipated the commission might come down and conclude. [00:37:47] Speaker 00: And then from a theoretical matter, [00:37:50] Speaker 00: What your honor is saying is it just demonstrates how strong the commission's cost attribution methodology really is. [00:37:59] Speaker 00: Because as that sentence illustrates, the commission is updating that cost attribution methodology all of the time. [00:38:06] Speaker 00: It's improving its distribution keys. [00:38:08] Speaker 00: It is making refinements to the way that it measures what costs are attributable to competitive products in the sense that it's measuring what costs would go away if competitive products were to go away. [00:38:19] Speaker 00: And in doing that, the commission is saying these costs were once classified as institutional. [00:38:26] Speaker 00: where the postal service would only be required to bear, quote, an appropriate share of them. [00:38:31] Speaker 00: But now we're going to require that they be classified as attributable, which means that to the extent that they're associated with competitive products generally or with a competitive product specifically, well, then the postal service has to cover that. [00:38:43] Speaker 00: And so this criticism for me is a little hard to fathom because it just demonstrates that once the commission [00:38:50] Speaker 00: updates its reliably identified causal relationship methodology to figure out these costs and adds more costs to it. [00:38:57] Speaker 00: They don't disappear, but instead they go from the category of institutional costs to the category of attributable costs where they must be accounted for by the Postal Service in the relevant census under sections A1 and A2 of the statute. [00:39:14] Speaker 00: I'm sorry, I got pretty caught up in this. [00:39:16] Speaker 00: I noticed that my time has long since expired. [00:39:18] Speaker 01: I want to make sure you have a chance to address the delta. [00:39:21] Speaker 01: I think I know what your answer is going to be, but I want to hear the delta between the 39% and the 10 plus percent. [00:39:27] Speaker 00: So my first answer is statutory and my second answer will be practical. [00:39:32] Speaker 00: So as a statutory matter, [00:39:33] Speaker 00: There is no requirement that the appropriate share be set at current cost coverage levels. [00:39:40] Speaker 00: That is not at all apparent from the text of A3 or the text of Section 3633B. [00:39:46] Speaker 00: To the contrary, Congress characterized the appropriate share as, quote, a minimum contribution requirement. [00:39:54] Speaker 00: not a requirement that there be 100% cost coverage between competitive and market dominant products. [00:40:00] Speaker 00: So that's the theoretical answer. [00:40:02] Speaker 00: And as a practical answer, as the commission explained, the fact that the Postal Service is currently able to reach 40% cost coverage just testifies to the strength of the market, the underlying power that the Postal Service has to set prices [00:40:17] Speaker 00: at such a level as to capture 40% of institutional costs or something along those lines. [00:40:24] Speaker 00: But I think interveners brief makes a good point when they explain, and the commission explains this as well, that current market conditions may not stay the way they are. [00:40:34] Speaker 00: And so what UPS is proposing in some of its suggestions is that [00:40:39] Speaker 00: this court require the commission to set the appropriate share at what the current level is. [00:40:45] Speaker 00: And that would basically freeze the appropriate share at the current snapshot in time and essentially subject the Postal Service to a price floor that may be, in fact, too high if market conditions shift as intervener's brief makes clear that they have begun to. [00:41:02] Speaker 00: I think intervener's brief points out that now the volume of competitive products has actually decreased [00:41:08] Speaker 00: And so there's no reason to believe that current market conditions are going to persist. [00:41:15] Speaker 00: But that also relates to another issue that my friend on the other side has brought up, which is findings about the fundamental health of the market. [00:41:26] Speaker 00: You asked Judge Garcia the other side to point to the best evidence against the commission's very detailed description of how it assesses the health of the market. [00:41:35] Speaker 00: And the best evidence that the other side was able to point to was the fact that the Postal Service has lost money. [00:41:43] Speaker 00: And they say that this is the smoking gun. [00:41:45] Speaker 00: A private enterprise wouldn't be able to sustain losses like this. [00:41:48] Speaker 00: But the commission addressed that at length. [00:41:50] Speaker 00: And so although the other side characterizes what the commission said as Ipsy Dixit, if you look at what the commission actually said on pages 1214 and 1215 of the JA, the commission found that these losses are not driven by underpriced competitive products, but instead by sharp decreases in the volume of market dominant products [00:42:08] Speaker 00: And also by the postal services until recent obligation to pre-fund certain retiree health benefits. [00:42:16] Speaker 00: And the commission also found that were it not for the fact that the postal service was trying to extract value from its competitive products, the losses might even be more significant. [00:42:28] Speaker 03: And is there anywhere in the appendix we can look to find out if they're the [00:42:33] Speaker 03: Commission thinks USPS has losses on its competitive products. [00:42:39] Speaker 00: I don't know the answer to that, but I can look into that and find out, Your Honor, if you need. [00:42:46] Speaker 00: But the critical point here is that at the end of the day, the commission has made an expert judgment about the health of the market. [00:42:55] Speaker 00: And the commission has found that... Your Honor, I'm sorry. [00:43:01] Speaker 00: Let me revise the answer to your question because I think I can get at kind of what you're asking. [00:43:05] Speaker 00: What you're asking is whether there is evidence of deliberate underpricing by the Postal Service of competitive products, I think. [00:43:15] Speaker 00: And what the Commission found with respect to that is that there has been no evidence of the Postal Service engaging in that kind of underpricing. [00:43:25] Speaker 00: And to the contrary, the Postal Service has always exceeded [00:43:30] Speaker 00: the costs that it was required to cover. [00:43:33] Speaker 00: And the pages for that, I think, are 1219 and footnote 156 of the joint appendix where the commission discusses the evidence of underpricing and the lack of evidence of deliberate misbehavior by UPS. [00:43:47] Speaker 01: Commissioner, my colleagues don't have additional questions for you, Mr. Sheik. [00:43:51] Speaker 01: All right. [00:43:51] Speaker 05: Thank you. [00:43:53] Speaker 05: Please, Judge Roberts. [00:43:55] Speaker 05: I'd like to hear your response to [00:44:00] Speaker 05: petitioners argument that neither the commission nor the court can ignore the plain statutory language where Congress made a decision that it wanted the commission to look at separate things and advise after essentially an empirical study that [00:44:30] Speaker 05: What Congress was requesting was either not possible or made no economic sense in the way the commission understood what was happening in the market. [00:44:51] Speaker 06: Thank you, Your Honor. [00:44:52] Speaker 00: I have two responses to that. [00:44:55] Speaker 00: Again, the first is legal and the second is on the face of this record. [00:45:01] Speaker 00: So as a legal matter, there is no impossibility threshold in the statute or in the 2020 decision that led to the remand that we're discussing today. [00:45:12] Speaker 00: And this is important because the other side attempts to characterize section 3633A and A3 and 3633B as somehow demanding that the commission disprove the existence of additional uniquely or disproportionately associated costs beyond those that the commission has already determined are also subsumed within the category of costs attributable. [00:45:40] Speaker 00: Nothing in the statute says that, and nothing in this court's decision says that. [00:45:44] Speaker 00: And so the other side is essentially attempting to invent an evidentiary requirement for the commission that doesn't actually exist. [00:45:53] Speaker 00: But the commission discussed that in detail, as I said in some of my colloquy with Judge Garcia, where the commission explained as a qualitative matter that, of course, [00:46:04] Speaker 00: recognizing the legal distinction between the sweep of reliably identified causal relationship, which is definitionally narrower than the legal sweep of, quote, uniquely or disproportionately associated. [00:46:15] Speaker 00: Nevertheless, right now, on the basis of the econometric tools available to the commission, there is no way to ascertain [00:46:22] Speaker 00: whether any costs in the institutional cost bucket bears the requisite, meaningful, unique, or disproportionately associated relationship with competitive products to warrant consideration in this way. [00:46:35] Speaker 05: And I want to, you know, I promise- I understand council, I understood your earlier response, but what I'm focusing on is a congressional requirement that this court [00:46:50] Speaker 05: remanded the commission to consider. [00:46:54] Speaker 05: And arguably, one might have thought the commission would have responded somewhat differently, other than saying in a conclusory way, we considered these factors. [00:47:10] Speaker 05: And here's our conclusion. [00:47:12] Speaker 05: I mean, in response to Judge Garcia's question, [00:47:16] Speaker 05: I understood you to say you might be able to provide us with record sites, but not that it's clear on this order what the commission actually did. [00:47:29] Speaker 05: I'm not suggesting you have to meet an impossibility standard. [00:47:36] Speaker 05: But as I understand part of the argument, the problem with the current order in part [00:47:46] Speaker 05: is it's a trust the commission analysis. [00:47:51] Speaker 05: And that's not good enough in light of Congress's specific requirements. [00:48:01] Speaker 00: So I apologize for giving you that impression, Your Honor. [00:48:04] Speaker 00: I want to be absolutely clear. [00:48:06] Speaker 00: I emphatically reject the other side's characterization of the commission's order as somehow based on a trust me because we're the commission type analysis. [00:48:14] Speaker 00: And I emphatically reject the idea that the commission's record that it developed fails to contain the requisite evidence of consideration. [00:48:23] Speaker 00: And so, for example, the qualitative discussion that I was talking about with Judge Garcia appears at pages 1149 through 1152 of the commission's order, where it discusses its understanding of institutional costs. [00:48:38] Speaker 00: The commission's discussion of institutional costs is also scattered at various points throughout where it responds to arguments about institutional costs. [00:48:46] Speaker 00: And so I would direct the court to our brief where we discuss some of those other places where the commission discussed institutional costs in general at length. [00:48:55] Speaker 00: And in particular, the portions of our brief discussing those aspects of the commission's order [00:48:59] Speaker 00: Showing that UPS is assertion through regressions of some relationship between institutional costs on the one hand and competitive products on the other simply just didn't hold up on any sort of, you know, the commission's economic judgment. [00:49:15] Speaker 00: But in addition to that, I would direct the court to the specific pages of the commission's order where the commission discussed all of the costs that UPS was invited to bring up in response to the commission's analysis, because the commission said, you know, [00:49:32] Speaker 00: We've looked at all of these costs. [00:49:34] Speaker 00: The way we've looked at them is we've figured out what they actually are after. [00:49:40] Speaker 00: And these are the costs that can't be said to bear a causal relationship to the production of competitive products. [00:49:46] Speaker 00: And after thinking about it, we have concluded that it is impossible right now to demonstrate the existence of such a relationship. [00:49:55] Speaker 00: That warrants significant consideration. [00:49:57] Speaker 00: But then the commission said, we understand that the commenters and potentially even a court might have concerns about this level of understanding. [00:50:06] Speaker 00: So just to make clear in our mind that we have got it right, we're going to ask for evidence of costs that are allegedly institutional costs [00:50:17] Speaker 00: that do bear the requisite unique or disproportionate relationship, but are not already captured by the definition of cost attributable. [00:50:24] Speaker 00: And so UPS was invited to submit many of these costs. [00:50:28] Speaker 00: UPS listed a whole bunch of them in their briefs focusing on peak season costs. [00:50:32] Speaker 00: For example, the cost of trucks, the cost of mail carriers, the cost of capital investments, the cost of rural carriers, vehicle service costs, institutional costs of that sort. [00:50:42] Speaker 00: And there are pages and pages and pages of the commission's order discussing all of those specific costs explaining why UPS is assertion that those are in fact unique or disproportionately associated in a manner beyond what the commission's analysis admits was wrong. [00:50:57] Speaker 00: and then saying that regardless of whether UPS was right or not, the commission would consider those costs as if they were uniquely or disproportionately associated and reach the same conclusion anyway. [00:51:08] Speaker 00: Because at bottom, the section 3633A3 analysis as informed by section B does not mandate that the commission reach any given conclusion once it has determined what these uniquely or disproportionately associated costs are. [00:51:23] Speaker 00: Instead, it leaves to the discretion of the commission [00:51:27] Speaker 00: the decision where to set the appropriate share based on an assessment of, quote, all relevant circumstances of which the prevailing market conditions are one, of which the degree to which there is any uniquely or disproportionately associated costs are another. [00:51:43] Speaker 00: And the commission faithfully discharged its responsibilities both under this court's remand decision in 2020 and under the statute of section 3633. [00:51:53] Speaker 01: So one provision that came up [00:51:56] Speaker 01: And the other side's argument, you haven't mentioned it's behind. [00:51:59] Speaker 01: Yeah, so look at the text of be nine and isolation. [00:52:03] Speaker 01: It, it can certainly understand the submission that's being made. [00:52:09] Speaker 00: Yeah, so absolutely. [00:52:11] Speaker 00: So UPS is dramatically over reading what that provision is. [00:52:15] Speaker 00: It's not in the competitive product section of the PAEA at all. [00:52:21] Speaker 00: It appears as one of nine unweighted objectives and 14 unweighted factors that the commission was required by Congress to consider when establishing and reviewing a wholly separate rate making system, the one governing market dominant products, as this court described in the MPPC case that we saw in our briefs. [00:52:38] Speaker 00: And as the NPPC case makes clear, those nine objectives and 14 factors often point in different directions and weighing them necessarily involves trade-offs. [00:52:49] Speaker 00: That, you know, this court said in NPPC, the commission is best suited to make. [00:52:53] Speaker 00: So if this B9 section isn't mandatory, even in the context of market dominant, [00:52:58] Speaker 00: rate system developments, it's really hard to see how it eliminates the commission's statutorily granted discretion in 3633B to modify or even eliminate the appropriate share requirement. [00:53:09] Speaker 00: And furthermore, accepting the other side's interpretation of B9 would render section 3633B superfluous, right? [00:53:16] Speaker 00: Because in their view, B9 commands that all costs of the postal service be allocated [00:53:22] Speaker 00: either to market dominant or to competitive products. [00:53:25] Speaker 00: But if that were true, it would be really odd for then Congress to grant the commission the discretion to set an appropriate share of institutional costs for competitive products, considering all of these things that we've been discussing during the rest of my time here. [00:53:41] Speaker 00: And it's also refuted, as the commission makes clear at 1112 of the JA, by the legislative history of the PAEA, which shows that Congress considered, but then ultimately rejected, the idea of requiring competitive products to cover their share of institutional costs. [00:53:56] Speaker 00: And to the contrary, in the legislative report that we cite on JA 1111, Congress said, we don't want the commission to attribute 100% of its costs, or we don't intend [00:54:11] Speaker 00: that the Postal Service be required to attribute such a large percentage to competitive products that competitive products will cease to be affordable. [00:54:20] Speaker 00: That just demonstrates going back to the statutory provision that actually governs the appropriate share that [00:54:26] Speaker 00: What the appropriate share does is it's not a costing exercise. [00:54:29] Speaker 00: It does not mandate, even if you buy every single one of UPS's arguments with respect to unique or disproportionately associated costs, it doesn't mandate that the commission do anything in particular with those costs when setting the appropriate share. [00:54:42] Speaker 00: To the contrary, as this court made clear in 2020, the commission retains the discretion to decide after making the appropriate consideration where the appropriate share should be. [00:54:52] Speaker 01: I'm sure my colleagues don't have additional questions for you at this time. [00:54:55] Speaker 01: Thank you, Mr. Shee. [00:54:56] Speaker 01: Thank you. [00:54:56] Speaker 05: I want to follow up on one thing, then. [00:55:02] Speaker 05: Your position, as I understand it, is that UPS's interpretation of the word consider in the statute is nowhere supported by the text or, to that matter, the legislative history. [00:55:23] Speaker 05: that it had to do additional empirical studies. [00:55:28] Speaker 00: Act your honor. [00:55:29] Speaker 00: So, and it's not just the position of the commission. [00:55:33] Speaker 00: You know, as this court described in the 2020 remand order, quote, it is not for this court to say that the commission must account for costs in any specific way under section 3633 B or that the commission must make it. [00:55:50] Speaker 05: I was hoping you could respond to that. [00:55:56] Speaker 00: So, you know, the commission has discussed the meaning of the word consider. [00:56:03] Speaker 00: And what the commission just said in its order is that the word consider does not mean to, you know, do anything in particular with it means basically plain meaning of consider to think very hard about. [00:56:15] Speaker 00: And, you know, we describe the commission's plain meaning analysis of the word consider in the brief. [00:56:22] Speaker 00: The other side doesn't really attempt to rebut the commission's understanding of the word consider and the court's decision in 2020 is entirely consistent [00:56:32] Speaker 00: with the commission's understanding of the word consider because the court rejected UPS's invitation at that time to mandate that the commission do something in particular on the basis of what UPS claimed the unique and or disproportionately associated costs of the Postal Service were. [00:56:52] Speaker 00: The fact that this court [00:56:53] Speaker 00: left to the commission the discretion to reach the exact same conclusion on remand just underscores that the word consider doesn't have the overlay that the other side would like to attribute to it. [00:57:06] Speaker 00: And moreover, the word to consider doesn't have an implicit mandate that the commission conduct a regression of any particular kind. [00:57:15] Speaker 00: It doesn't mandate that the commission undertake a study of any particular kind. [00:57:19] Speaker 00: And to the contrary, governing principles of APA law make clear that statutes like this leave ample discretion to the commission to decide how best to do consideration, such as, for example, the Supreme Court's recent decision in the Prometheus case, which I think we cite in our brief. [00:57:37] Speaker 00: And so there is no minimum quantum of empirical data that this statute mandates or that the 2020 decision mandates. [00:57:46] Speaker 00: But nevertheless, the commission [00:57:47] Speaker 00: engaged with all of the empirical analysis presented to it by commenters, including UPS, and then proceeded to explain why that empirical analysis, which was inconsistent with the commission's qualitative description of institutional costs, nevertheless made sense in light of currently available econometric principles. [00:58:05] Speaker 00: And so that's why what the commission did is fully consistent both with a statute and with this court's decision and with generally accepted understandings of what the word consider entails. [00:58:18] Speaker 06: Thank you. [00:58:18] Speaker 01: Thank you. [00:58:19] Speaker 01: Thank you, council. [00:58:20] Speaker 06: Thank you. [00:58:21] Speaker 06: We'll hear from intervenors council now. [00:58:24] Speaker 06: Mr. Longstreet. [00:58:29] Speaker 06: Thank you, honors. [00:58:30] Speaker 02: John Longstreet for the intervenors. [00:58:32] Speaker 02: And I'll just try to be really quick because a lot of it's been hashed over already. [00:58:36] Speaker 02: We represent the users of the postal service. [00:58:39] Speaker 02: We have no interest in a non-competitive marketplace. [00:58:42] Speaker 02: We want a competitive marketplace. [00:58:43] Speaker 02: We think there is a competitive marketplace. [00:58:45] Speaker 02: We have no interest in a non-level playing field. [00:58:47] Speaker 02: Our concern is that UPS does want to tilt the playing field. [00:58:51] Speaker 02: There's an old saying distributed to Senator Magnus and all anybody ever wants from the government is a slight competitive advantage in their favor. [00:58:58] Speaker 02: And we know UPS has been very assiduous about seeking that for decades now. [00:59:04] Speaker 02: Lawyers, economists, you know, we have good economists, too. [00:59:08] Speaker 02: And the commission went with those economists, Professor Panzer. [00:59:12] Speaker 02: There are two of his declarations that go into all of these issues and in great detail. [00:59:17] Speaker 02: The commission went with him. [00:59:19] Speaker 02: The commission's entitled to do that. [00:59:21] Speaker 02: But the point is, we use UPS as well. [00:59:24] Speaker 02: We do not have an interest in an uncompetitive marketplace. [00:59:28] Speaker 02: We think the marketplace is competitive, and there's no need for intervention here. [00:59:32] Speaker 02: I'd like to just address one point that my friend made, which is essentially the trust us argument. [00:59:37] Speaker 02: Well, we might as well not have government at all if we just trust regulated parties to voluntarily comply. [00:59:45] Speaker 02: I'll put my love of government up with anybody else's. [00:59:48] Speaker 02: I understand we have a position. [00:59:50] Speaker 02: I understand we have a place for government where the competitive marketplace isn't working. [00:59:55] Speaker 02: This is not a case where the Postal Service is making voluntary contributions to some kind of institutional cost fund, like some kind of charitable donation. [01:00:04] Speaker 02: They're operating in a competitive marketplace. [01:00:07] Speaker 02: And their pricing behavior in the competitive marketplace [01:00:10] Speaker 02: where they're not price takers. [01:00:12] Speaker 02: They don't have market power in that. [01:00:13] Speaker 02: They go and operate in that competitive marketplace. [01:00:15] Speaker 02: And the result of that competitive marketplace is, as UPS concedes, a 39.2% contribution to institutional costs in 2021. [01:00:27] Speaker 02: So that's not something the Postal Service is doing out of the goodness of their hearts. [01:00:31] Speaker 02: That's something they're doing as an economic actor in a competitive marketplace. [01:00:35] Speaker 02: And UPS has shown no need whatsoever [01:00:38] Speaker 02: for the Commission to have the kind of heavy-handed regulatory intervention into that marketplace that they seek. [01:00:44] Speaker 02: So it's not a question of trust us, it's a question of trust the market. [01:00:47] Speaker 02: As the Commission found, at this particular point in time, we can trust the market. [01:00:51] Speaker 02: The market is performing very well. [01:00:55] Speaker 02: There's also a thought that well you know since all their remedies are doing is mimicking the market now it won't really cause very much harm. [01:01:05] Speaker 02: We think it could cost significant harm and I think the commission's council talked about that where you're sort of freezing in you know 2021 [01:01:15] Speaker 02: You know, it was after the pandemic. [01:01:17] Speaker 02: You know, it was kind of an upswing. [01:01:19] Speaker 02: What UPS would like to do would be to freeze that snapshot in time and then hold us to that, regardless of what the market does going in the future. [01:01:27] Speaker 02: That could really create a problem. [01:01:29] Speaker 02: If you start sliding down, you create this doom loop. [01:01:32] Speaker 02: We kind of describe it in our briefs where, you know, the [01:01:36] Speaker 02: If the postal service starts falling behind, then under these kind of fully distributed costing mechanisms, UPS wants they have to start making it up by raising their prices, but they're in a competitive marketplace. [01:01:47] Speaker 02: They can't do that. [01:01:48] Speaker 02: And it just kind of spirals out of control. [01:01:50] Speaker 02: That's the thing that we as users of the postal service would be very concerned about, that they would be putting them in that kind of situation. [01:01:59] Speaker 03: The- It hasn't come up today. [01:02:01] Speaker 03: I'm just curious if you have an explanation. [01:02:03] Speaker 03: Okay. [01:02:03] Speaker 03: Is Postal Service's market share in a little over 10 years has doubled from 9% to 20%. [01:02:09] Speaker 03: Yeah. [01:02:10] Speaker 03: Might be an indication that something is amiss. [01:02:13] Speaker 03: And I'm just wondering what the intervener's explanation of that dramatic rise is. [01:02:19] Speaker 02: Yeah. [01:02:19] Speaker 02: I mean, you know, they've, you know, they, they, they put a lot of evidence, they put a lot of effort into the combative products. [01:02:29] Speaker 02: into the competitive products business. [01:02:33] Speaker 02: They have a very, I mean, my client Amazon has a contract with them that's been a good contract for them and that has helped them grow their share. [01:02:42] Speaker 02: It's been good for us. [01:02:43] Speaker 02: It's been good for the postal service. [01:02:45] Speaker 02: So I'm not sure I can really say what's going on except that as the commission found, and I don't think there's a shred of evidence in the contrary to it, it's not the result of the fact that there's some kind of, you know, [01:02:57] Speaker 02: Um, improper pricing going on by the postal service. [01:03:01] Speaker 02: You know that that's going fine. [01:03:02] Speaker 02: So I'm ready. [01:03:03] Speaker 02: I'm ready to kind of you might accept that just they're doing a good job with it. [01:03:07] Speaker 02: And we as Amazon think that they're doing a good job with it. [01:03:09] Speaker 02: That's why we've extended our contract. [01:03:12] Speaker 01: Um, I think, uh, um, I guess, yeah, I think I can sit down. [01:03:19] Speaker 01: Thanks. [01:03:20] Speaker 01: Don't have to use all it. [01:03:22] Speaker 01: Thank you. [01:03:22] Speaker 01: Council was Sullivan. [01:03:24] Speaker 01: We have the three minutes for rebuttal that you asked for. [01:03:27] Speaker 04: Thank you, Your Honors. [01:03:28] Speaker 04: Three quick points. [01:03:29] Speaker 04: Judges Garcia and Rogers both asked counsel on the other side to show where was the analysis that showed that as the red brief says at page 19, currently available econometric techniques confirm that no institutional costs can be said to bear the reckless, unique or disproportionate relationship. [01:03:47] Speaker 04: Mr. She gave you no answer, which leaves us with the conclusion it is conclusory. [01:03:52] Speaker 04: Mr. Shi referred to page JA 1170, but there the commission refers to detailed analysis. [01:03:59] Speaker 04: Yes, they use that word, but then it refers back to JA pages 1150 to 65. [01:04:05] Speaker 04: And I challenged the court to read those pages and find any analysis there. [01:04:08] Speaker 04: There is no analysis of a technique that was tried but failed. [01:04:12] Speaker 04: And the answer to that, Judge Garcia, you helped focus on with the reference to the NPRM, JAPH 510. [01:04:18] Speaker 04: That's because it's not that the PRC looked for these costs, cost relationships and found they couldn't find them. [01:04:26] Speaker 04: It's that they've ruled out [01:04:27] Speaker 04: disproportionately associated costs by definition, because they've said the only methodology that is economically sound is reliably identified causal relationships. [01:04:39] Speaker 04: We make that point on page 41 of the blue brief. [01:04:44] Speaker 04: Second point, Your Honor, again, very quickly, Judge Garcia, you asked, is there any evidence that there's underpricing of competitive products? [01:04:50] Speaker 04: And Mr. Xi says, look at JA 12, 14 to 15. [01:04:54] Speaker 04: And no, no, we lose money because of the decline in market dominant products and our pension obligations. [01:04:59] Speaker 04: But that's false. [01:05:00] Speaker 04: There is evidence in the record that competitive products are part of the loss problem. [01:05:05] Speaker 04: And for that, I would refer you to the blue brief at page 51, which cites to the Postal Service's own 10Q, which says losses were due in part [01:05:17] Speaker 04: to the competitive products business. [01:05:19] Speaker 04: Just because you lose money on declining market dominant products and pension obligations doesn't mean you aren't also losing money on competitive products. [01:05:26] Speaker 04: The failure to consider losses from competitive products was contrary to law. [01:05:30] Speaker 04: And third, Your Honors, on 3622B9, which Judge Srinivasan, you brought up at the end, Mr. Sheen says, oh, well, that's not part of the analysis because it's 3622B9. [01:05:44] Speaker 04: It's part of the A2 analysis. [01:05:46] Speaker 04: It's not part of the A3 analysis. [01:05:48] Speaker 04: But the Postal Commission itself has said otherwise. [01:05:52] Speaker 04: I cited you earlier, the easiest place to find this is Blueberry 41. [01:05:56] Speaker 04: Blueberry 41 is where the Postal Regulatory Commission says, even though B9 is outside of 3633H, it is the mechanism, A3 and B are the mechanism by which [01:06:14] Speaker 04: The Postal Regulatory Commission satisfies its obligation under B-9. [01:06:18] Speaker 04: And the fact that it's one factor in nine doesn't mean that you can't, don't have to consider it. [01:06:22] Speaker 04: It's one factor of nine, but you have to consider it. [01:06:24] Speaker 04: By definition, they fail to consider it. [01:06:27] Speaker 04: The order is contrary to law, arbitrary and capricious and should be remanded. [01:06:30] Speaker 04: Thank you, Your Honors. [01:06:32] Speaker 01: Thank you, Tansel. [01:06:33] Speaker 01: Thank you to all council. [01:06:34] Speaker 01: We'll take this case under submission.