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OST-1995-429

OST-2003-14694 - Bush
OST-2003-14695 - Mainline

Intra Alaska Class Service Mail Rates 

OST-1995-429 & OST-95-405 | May 5, 1997

Equalization Notice of Jim Air, Inc. 

JIM AIR INC., a certified air carrier currently authorized to transport mail, hereby gives notice of its intent to equalize its rates between ANCHORAGE and CORDOVA with the lower level(s) paid to another carrier or combination of carriers in the market, effective MAY 28.1997.

By:  Jim Air, James Bern 

OST-95-429 | OST-95-405 | May 13, 1997

Rate Equalization Notice of Taquan Air Service

Taquan Air Service, Inc. (H7), a certificated carrier authorized to transport United States mail, hereby gives notice of it election to equalize its mail rate, between and among Ketchikan, Wrangell and Petersburg, Alaska, for all categories of mail, with the lowest levels paid to other carriers or combination of carriers in the markets, regardless of routing, elective immediately.

By: Mark Glaspey, General Manager, 907-225-1010

Order 97-6-27 | OST-95-429 | Issued June 25, 1997 | Served July 1, 1997

Order to Show Cause Establishing Final Service Mail Rates

By this order the Department proposes to establish new intra-Alaska mainline service mail rates for the second half of 1997. The rates that are currently in effect were established by Order 96-12-43, served December 31, 1996, for the first half of 1997, i.e., January 1 through June 30, 1997. Those rates will remain in effect as final rates through June 30, or until we issue an order setting new final rates for the second half of 1997, whichever is later. All interested persons are requested to show cause why the findings and conclusions contained in this order should not be adopted.

Appendix A | Appendix B | Appendix C | Appendix D

By: Charles Hunnicutt

OST-95-429, 95-405 | July 11, 1997

Rate Equalization Notice of Yute Air

Notice of its intent to equalize its mail rates between Anchorage and Kenai, for all classes of mail with the lower levels paid to other carriers or combinations of carriers in the market effective immediately.

By: Matthew Johnson, Cargo Manager, 907-243-1011

Order 97-7-17 | OST-95-429 | Issued July 18, 1997 | Served July 24, 1997

Order Establishing Final Service Mail Rates

By: John Coleman

Order 97-9-37 | OST-95-405 | OST-95-429 | Issued October 3, 1997 | Served October 3, 1997

Order to Show Cause

By this order, the Department proposes to: (1) change the methodology it currently uses to update the Alaska Bush and Mainline mail rates; (2) change the frequency of the Alaska Mainline rate updates from twice a year to once a year; and (3) adjust the procedural schedule for responses to Alaska mail rate show-cause orders by eliminating the provision for Notices of Objection and extending the Answer period to 45 days after the service date of the Show Cause Order.

By: Charles Hunnicutt

Order 97-11-20 | OST-95-405 | OST-95-429 | Issued November 12, 1997 | Served November 18, 1997

Order

By this order the Department makes final its tentative findings and conclusions set forth in Order 97-9-37, served October 3, 1997, and (1) changes the methodology the Department currently uses to update the Alaska Bush and Mainline mail rates; (2) changes the frequency of the Alaska Mainline mail rate updates from twice a year to once a year; and (3) adjusts the procedural schedule for responses to Alaska mail rate show-cause orders by eliminating the provision for Notices of Objection and extending the Answer period to 45 days after the service date of the Show Cause Order.

By: Charles Hunnicutt

Order 98-1-9 | OST-95-429 | 38961 | Issued January 12, 1998 | Served January 15, 1998

Order Establishing Final Service Mail Rates

By this order the Department is setting final intra-Alaska mainline service mail rates for the period beginning with the date of issue of this order through September 30, 1998, or until further order of the Department, whichever occurs later.

Appendix A - Intra-Alaska Class Service Mail Rates: Mainline Rates January 1-September 30, 1998

By: John Coleman

The fair and reasonable final rates of compensation to be paid in their entirety by the Postmaster General pursuant to the provisions of 49 U.S.C. 41901 for the transportation of mail by mainline aircraft 1 over intra-Alaska routes, the facilities used and useful therefor, and the services connected therewith, by each holder of a certificate authorizing the transportation of mail by aircraft 2 for the period beginning October 1, 1998, through September 30, 1999, or until further order of the Department, whichever occurs later, are those specified in the attached Appendix A

By:  John Coleman

Counsel:  Bagileo Silverberg, Robert Silverberg

Counsel:  Bagileo Silverberg, Robert Silverberg, 202.944.3300

By:  Bradley Mims

By:  John Coleman

Petitioner is an Alaskan air carrier engaged, inter alia, in the air transportation of mail between points within Alaska, for which compensation is paid by the Postal Service pursuant to rates fixed and determined by the Department of Transportation, previously the Civil Aeronautics Board. The cost experience of NAC and of Alaska Airlines, Inc. ("Alaska") provides the cost base from which the mainline service mail rates are fixed and determined. The most recent such rate order is Order 99-9-13, finalizing Order to Show Cause 99-6-16 and fixing the final rates for intra-Alaska mainline service for the period beginning October 1, 1999 through September 30, 2000. In this most recent Final Order, the Department is continuing to use the methodology first implemented in Order 98-7-3 for the annual period October 1, 1998-September 30, 1999. In setting the new rates for the year ending September 30, 2000 in the afore cited Orders, the Department implemented procedural and methodological changes that were proposed and discussed in its Show Cause Order 97-9-37. The changes were also fully discussed and considered in written comments involving the Department's staff, the Postal Service and the carriers, and as set forth in the DOT Final Report on the Review of The Alaska Mail Ratemaking Methodology, dated September 2, 1997 ("Final Report"), prepared and issued by the Office of Aviation Analysis.

Counsel:  Hewes Gelband, Theodore Seamon, 202.337.6200

By:  Office of Aviation Analysis

Alaska appreciates that the Department may prefer to fashion a different ad hoc fuel cost update methodology than was used in 1990-91 or than Alaska is now suggesting. Alaska would only underscore that the methodology used should be based on fuel cost changes, for the reasons already expressed, and that the Department should make every effort to make the adjustment with all deliberate speed. To assist the Department and its staff, Alaska is appending its updated historic changes in crude oil per barrel prices in relation to the historic rate of change in the delivered per gallon jet fuel price.

Counsel:  Sanders Dempsey, Marshall Sinick, 202.626.6600

Northern Air Cargo, Inc. ("NAC"), Petitioner herein, herewith amends its Petition of October 6, 1999 for Ad Hoc Mail Rate Adjustment for the purpose of correcting inadvertent error in the attached Appendix.  The Appendix, as was its original intent, labels as "Intra-Alaska" the data for the year ending March 31, 1999 and the quarters ending June 30, 1999 and September 30, 1999. The data should be shown as "System" Fuel Expense, also applicable to available ton miles and unit cost per ATM for the dim periods represented in the Appendix. The original intent of the Appendix was to show the Intra-Alaska Fuel Expense and Unit Cost for the three types of aircraft represented in the Appendix. However, when the appendix was prepared, data necessary to break out Intra-Alaska Fuel Costs was not available. In order to provide information with respect to the cost increases on a comparative basis, the carrier used system expense for each of the three periods involved. Pursuant to directive from the Office of Aviation Analysis, the necessary data is being supplied by both Alaska Airlines and NAC to provide basis for breakouts of Intra-Alaska Fuel Costs.

Counsel:  Hewes Gelband, Throdore Seamon, 202-337-6200

By:  Bradley Mims

Counsel:  Lynden, Michael T. Hart

Counsel:  Senior Counsel U.S. Postal Service, Michael Vandamm

By:  Bradley Mims

Counsel: Sanders Dempsey, Marshall Sinick, 202.626.6600

By:  Alaska Central, Bob Anderson

By:  United States Postal Service, Michael Vandamm

Counsel:  Hewes Gelband, Theodore Seamon, 202.337.6200

Order 2000-3-13 is increasing the line haul portion of the Intra-Alaska mainline mail rates by 2.78%, effective April 1, 2000, to reflect recent large fuel price increases consistent with the methodology established in Order 99-12-15. 

By:  Bradley Mims

By:  Alaska Central, Bob Anderson, and Silverberg Goldman, Robert Silverberg

By:  Larry's Flying Service, Jean Chenaille

By:  Arctic Transportation Services, John Eckels

By:  Tanana Air, Fred Ciarlo

By:  Warbelow's Air Ventures, Arthur Warbelow

As discussed above, the Postal Service believes that the Department has acted in an appropriate manner, both in its decision to include Yute, a carrier that operated as a bush service carrier for the entire period used for calculating the rate update, and in the methods used by the Department to estimate Yute's costs for the period. Moreover, the Postal Service believes that the Department has acted appropriately in making its proposed rates final, while allowing the flexibility to make adjustments to-the rate in the upcoming year.

By:  United States Postal Service, Michael Vandamm

The Postal Service has consistently advocated that all carriers who participate in the transportation of mail "make up the competitive marketplace that ultimately determines the cost of operations" and that the exclusion of a carrier be done with great care. The Postal Service believes, however, that the Department should adhere to its past precedent and examine and verify that the new carriers share sufficient operational cost, aircraft type (consistent with the requirements of the rate type), and route characteristics with the mainline carriers currently being used in the update methodology.

By:  United States Postal Service, Michael Vandamm

NAC’s primary request is that the Department significantly refine its current practice of weighting each intra-Alaska carrier’s costs solely on the basis of each carrier’s relative intra-Alaska capacity expressed in ATMs. Under the current ATM approach, the Department does not take into consideration either the relative volumes of mail transported by each carrier or the relative costs of the aircraft used by each carrier to transport mail. NAC’s recommendation would have the Department weight each intra-Alaska carrier’s costs on the basis of the mail volumes carried and on the basis of the costs of the particular aircraft used by each carrier to transport mainline mail. The logic behind NAC’s suggestion is compelling. NAC’s proposed approach would more closely reflect the cost of the actual carriage of intra-Alaska mail rather than simply continuing to weight each carrier’s costs on the basis of that carrier’s aggregate ATM output, a parameter which also measures the capacity provided—for passengers and freight—in addition to mail. NAC properly points out that the present aggregate ATM approach has resulted in Alaska’s relatively low unit cost B-737-400 and MD-80 combination aircraft artificially decreasing the mainline mail rates even though these combination aircraft carry less than thirteen (13%) percent of the intra-Alaska mail Alaska transports.

Counsel: Squire Sanders, Marshall Sinick, 202.626.6600

Northern Air Cargo, Inc. herewith submits this Reply to the Answers of the U.S. Postal Service and Alaska Airlines, Inc. which contain their responses to the Petition of NAC for Adjustment in Update Methodology to Weight Costs of Carriers and Aircraft by Amount of Mail Transported. To the extent this pleading may be construed as an unauthorized document and/or an untimely filing, NAC respectfully moves for leave to file same and that it be received and considered by the Department in its final disposition of our Petition. The USPS and Alaska responses reinforce the Petition that the mainline rate making methodology should be reformed so as to provide for weighting the cost data by the amount of mail transported; and that such modification should be made effective with the beginning of the next rate period, October 1, 2000, for the Fiscal Year ending September 30, 2001, although the Postal Service does present some invalid caveats.

Counsel:  Northern Air Cargo, Theodore Seamon, 202-337-6200

By this order the Department is increasing the line-haul portion of th e Intra-Alaska mainline mail rates by 7.45 %, effective July 1, 2000, to reflect recent large fuel price increases, consistent with the methodology established in Order 99-12-15.

By:  Bradley Mims

On March 2, 2000, the Postal Service filed an objection to Order 2000-1 -10 tentatively updating bush mail rates, asserting that the Department's mail update procedure is methodologically flawed. Essentially, the Postal Service argued that the Department should update linehaul rates based on indices that reflect the historical changes in speed and capacity of the aircraft used, and terminal rates on a basis that recognizes, for example, the significant difference in size between a twin-engine Piper Navajo and a single-engine Cessna 207. On April 1, the Department issued Order 2000-4-1 indicating the Postal Service had raised fundamental questions beyond the scope of a simple rate update. We updated the rates in accordance with past update procedures, but directed the parties to meet with Department staff to discuss the issues raised by the Postal Service. On May 9 and 10 a number of carriers met in Anchorage with representatives of the Department of Transportation and the Postal Service. A synopsis of that meeting is included as an attachment.

By:  Chief EAS and Domestic Analysis, Dennis Devany

Counsel:  United States Postal Service, Michael J. Vandamm, Senior Counsel

Order 2000-8-14 proposes to establish new Intra- Alaska mainline mail rates for the terminal element for the year ending September 30, 2001, and non-fuel linehaul costs for the same period, which when combined with fuel costs for the quarter ending June 30, 2000, will allow us to set linehaul rates as well. The rates that are currently in effect were established by Order 99-7-16, finalized by Order 99-9-13, for the year ending September 30, 2000, and updated for quarterly fuel adjustments by Order 2000-6-5, or until a final order is issued with respect to the rates proposed here, whichever is later

By:  Francisco Sanchez

By:  Alaska Air Carriers Association, John Eckels

Counsel: Squire Sanders, Marshall Sinick, 202.626.6600 and Northern Air Cargo, Theodore Seamon, 202-337-6200

Counsel:  U.S.P.S., Michael J. Vandamm

Counsel: Squire Sanders, Marshall Sinick, 202.626.6600 and Northern Air Cargo, Theodore Seamon, 202-337-6200

After discussions with the parties several years ago the Department indicated that it favored abolishing the practice of establishing retroactively adjustable rates in favor of issuing final temporary rates. We recently implemented this policy in the bush proceeding in Order 2000-4-1. However, upon careful consideration, we have reluctantly decided to extend the rates set by Orders 2000-6-5 and 99-9-13 as interim rates subject to retroactive adjustment until we can resolve the issues discussed in the show cause order with full benefit of all comments.

The situation in this instance is much different than that in the bush proceeding. The issue in the bush proceeding was a narrow one of whether a certain carrier should be added to the pool. Here, we are discussing a fundamental change in ratemaking methodology, which when finalized, will settle the issue beyond the immediate rate term for the foreseeable future. Moreover, the Postal Service has indicated how very important it believes this issue to be by both asking for a meeting with the parties and even declaring its intent to review its critically important and long-established mail tender policies in response to our decision.

Because the fundamental change in methodology proposed in the show-cause order is very significant both in magnitude and in its likely duration, it is critical that we have a full consideration of the issue before taking final action. On the other hand, we are sensitive to the carriers' position that if the Department ultimately does adopt the proposed new methodology, they (the carriers) should not be permanently deprived of the higher rates. In order to balance these competing and legitimate interests, we will reluctantly deviate from our policy of not adjusting rates retroactively, and will in fact here extend the current rates on an interim basis subject to retroactive adjustment. We will also attempt to resolve matters on a consensual basis as expeditiously as possible.

By:  Francisco Sanchez

Order 2000-11-9 sets a new final intra-Alaska mainline mail rates effective October 1, 2000, through September 30, 2001. The rate is based on traffic and costs for the year ended March 31, 2000, except for fuel, where consistent with Order 99-12-15, in response to dramatic fuel price increases, the Department decided to update the fuel portion of the linehaul quarterly. The rates currently in effect were extended as interim rates by Order 2000-9-27, effective October 1.

By:  Francisco Sanchez

By:  Francisco  Sanchez

By:  United States Postal Service, Michael Mumbach

By:  Dennis J. DeVany

By:  Francisco Sanchez

By:  John Coleman

The action taken by the Department to introduce a change in the rate update methodology in a show cause order is not consistent with the practice the Department has taken in the past. It has been the Department's practice to engage all parties in formal meetings and consensus--building discussions concerning a significant amendment to the rate update methodology prior to implementing a change.

In addition, the Postal Service voiced its concerns in its response to the show cause order in a timely manner, and reasonably expected the Department to reconsider its decision. Any delay in the implementation of the final mainline rates was not caused by any act or omission of the Postal Service. Further, it should be emphasized that in view of the Department's categorical rejection of retroactive ratemaking, any such delay does not provide a reasonable and sufficient basis for imposing rates retroactively in Order 2000-11-9.

The fact that the Department made these new rates effective retroactively violates the rules set forth in Order 95-12-32 where the Department, after considering the concerns of all parties, agreed to cease the practice of retroactive rate changes. In addition, this unjustified and arbitrary abandonment of established practice financially penalizes the Postal Service and its customers.

Finally, implementation of the new update methodology may include a significant error that, if corrected, would decrease the magnitude of the rate increase. Therefore, the Postal Service is requesting that the new mainline rates not be implemented retroactively, that the error in the update methodology be corrected and implemented prospectively, and that the Department engage all parties in meaningful discussions of the new update methodology prior to the next mainline update period.

Counsel:  USPS, Michael Mumbach

The DOT believes that applying the Reeve rate today for mainline service of mail is problematic given that the "underlying base for constructing the rate has disappeared." As the DOT has acknowledged, the Reeve rate has not been updated for inflation since the rate was inaugurated 20 years ago. As such, the USPS agrees with the DOT's concern that there is a need to reconsider the Reeve territorial rate.

Under the current Reeve rate and with Reeve no longer providing scheduled service to the Aleutians, the USPS is concerned with the level of reliable and dependable service to Aleutian destinations, especially considering the stage-lengths involved. Currently, given Reeve's departure from Aleutian markets, the USPS has found itself in a position of having to contact carriers frequently to ensure that mail can be transported to specific Aleutian destinations. Not only is this burdensome to the USPS, but it highlights the fact that providing adequate service to Aleutian markets has become increasingly problematic.

When considering various alternatives in setting mail rates for service to the Aleutians, the USPS is committed to ensuring that new rates lead to reliable and dependable mail transportation service. In the view of the USPS, the most dependable and efficient method for proving service to the Aleutian chain is to contract interested carriers establishing rates negotiated between the carriers and the USPS. In the time it takes to negotiate appropriate contract rates, the USPS is open to considering regulated rates for mail transportation to the Aleutians. However, it is concerned that a regulated environment may not lead to adequate service and that there is no empirical basis from which to calculate rates for mail transportation on the Aleutian chain.

Counsel:  United States Postal Service, Michael Krop

Alaska's immediate focus is the Anchorage-Dutch Harbor market in which Alaska is currently offering one daily B-737-200 combi aircraft round trip and is planning to restore a previously operated second daily round trip during the peak summer season. Alaska had previously operated two daily round trips in the Anchorage-Dutch Harbor market, but reduced its service level because of a combination of economic and operational considerations. The Anchorage-Dutch Harbor market poses a number of operational challenges and, on an individual market basis, is almost certainly more costly to serve than the "average" intra-Alaska market. Yet the per pound rate Alaska receives for the carriage of priority mail' under the outmoded Reeve Rate is less than 70 percent of what Alaska would receive to carry the same priority mail the same distance in any other intra-Alaska market. Specifically, the Reeve Rate is just $.72 per pound in marked contrast to the mainline priority rate of $1.05 per pound (Attachment A). Indeed, the anachronistic nature of the Reeve Rate is perhaps even more apparent when one considers that the Reeve Rate is so far out of date that it is almost equal to the current mainline nonpriority rate in the Anchorage-Dutch Harbor market. The effective per pound mainline nonpriority rate is $.70 or just 2.7 percent below the $.72 Reeve Rate. Further, with the likely upward quarterly April-May 2001 fuel adjustment, the nonpriority mainline rate and the Reeve Rate should be virtually the same if indeed not higher than the Reeve Rate.

Counsel:  Squire Sanders, Marshall Sinick, 202.626.6251

It is well-settled law that the Department is perfectly free to revise a policy provided the Department explains the reasons for its policy revision--just as it did in this instance. In addition, the actions or, more precisely, the inactions of the USPS also directly contributed to the unusual circumstances which arose and which justifiably caused the Department to depart from its non-retroactivity policy. Finally, the USPS can hardly claim to have "clean hands" in asking the Department to revise that portion of its November 13 decision directing that the newly finalized rates be made retroactive to October 1. Even as of this date, the USPS has taken it upon itself to decline to make retroactive payments for the mail carried during October 2000. The excuse offered to the Alaskan carriers is that "the matter is still under discussion" notwithstanding the USPS' clear obligation to have made such payments several months ago.

The USPS' petition utterly fails to establish that the Department's expressed reasons for deviating from its policy of non-retroactivity were unsound. The Departments November 13 decision to make the intra-Alaska rates retroactive to October I should be reaffirmed. Alaska would request that the Department also admonish the USPS that the Department's final ratemaking orders require that the USPS' payments be remitted in full rather than leaving the USPS to comply on a selective basis.

Counsel:  Squire Sanders, Marshall Sinick, 202.626.6251

Counsel:  USPS, Michael Mumbach

Alaska Central does not believe the USPS has made a persuasive case for reconsidering the Order because, as it argues, the DOT did not consult with the interested parties in advance of its issuance. The Order to Show Cause, Order 2000--8-14 was validly issued and the Postal Service responded to it. Moreover, the USPS position that it should have had an opportunity to first meet with the DOT and the carriers was, in fact, accommodated by the DOT but the Postal Service stated in its letter dated October 3, 2000 that it did not intend to participate in any DOT convened meeting. Consequently, Final Order 2000-11-9 properly dismissed the USPS objection as "moot." Alaska Central takes no position on the issue of the correct non-fuel line-haul costs for Lynden.

However, the DOT explained the step was necessary because the Postal Service had not only objected to the Show Cause Order but as well, raised several new issues the DOT would have to consider prior to issuing a Final Order. Therefore, in the interest of fairness to all parties--the carriers and the Postal Service, the Department announced its intention to make the final rates retroactive to October 1, 2000. Alaska Central shares the general concern of the Postal Service regarding the potentially disruptive effective of retroactive rate setting. However, in this case Alaska Central is of the view that the DOT has adequately explained its position for deviating from its general practice and the Postal Service had not presented any compelling arguments for overturning the DOT's reasoning. The Postal Service incorrectly describes the actions of the Department as arbitrary when in fact its actions were both explained and well grounded in Order 2000-9--27.

Counsel:  Silverberg Goldman, Robert Silverberg, 202.944.3300

We have no opinion regarding whether bush carriers should start using the T- 100 reporting system other than it seems logical to keep the source data consistent for both mainline and bush carriers. As a mainline carrier, we have adopted this system effective January 1, 200 1. We are breaking out our intra-Alaska scheduled volume from our other traffic in order to provide data that reflects our costs of operation that pertains specifically to the hauling of mail.

Bush carriers may be more inclined to want to sell their business, for whatever reason. If they had a share of the mail to actually sell, it would make their business much more valuable. All of this would require a change in the laws regarding equitable tender and carrier qualifications for mail entitlement. In effect the mail share becomes an "asset" for the carrier to sell, which has its own set of pitfalls. In order to do this, there would need to be some kind of "contract" with the USPS that guarantees a certain share of the mail, and that can be transferred to another carrier. It would also have the effect of a barrier to "entrance" into a market as long as existing carriers were unwilling to sell, or unwilling to sell to a carrier not currently serving a market. In other words, we would support some change in the law allowing "limited contracting" that would guarantee a departing carrier from a market the night to sell their share of the mail in that market. It would eventually provide a balance of capacity in that market.

Counsel:  Lynden Air Cargo, Michael Hart

Although each topic is considered independently below, the Postal Service recognizes a few prevailing ideas that recur throughout this response. First, a full conversion to the new reporting system is essential to improving data quality and, therefore, the accuracy of updates. The Postal Service urges the Department to expedite the adoption of a new update system. Likewise, a resolution to the RTM vs. ATM debate should be a priority as a preliminary step in the progression necessary to address many of the issues discussed below. Reluctance to resolve these issues expeditiously has continued to harm the Postal Service, as can be seen with the latest bush Show Cause Order in which rates increased significantly as a result of this delay. In order to remedy this situation, the Postal Service strongly encourages the Department to organize a series of meetings that would allow all parties the opportunity to discuss these topics and seek consensus on potential solutions to the issues. The Postal Service believes that meetings will enable all parties to more readily seek and arrive at solutions to many of the issues discussed in the document as well as additional issues which each party considers to be of importance. Although the Postal Service hopes these meetings lead to resolution of these issues and obviate the need for a full-blown bush rate case investigation, the Postal Service reserves the right to initiate such an investigation at any time.

By:  United States Postal Service, Michael Mumbach

For several years now ATS has been fretting over how a changing industry was relating to the industry that was in place in 1986 when the current base rate and update methodology were established. Our concerns have not been that the base rates or the methodologies were necessarily incorrect or flawed but rather that some of the data that was going into the calculations were data that were flawed or foreign to bush mail hauling. This has been evidenced by ATS' comments to many of the past rate show cause orders. We would continue to assert that a prime example of this is an increase in the number of 19 seat type aircraft flying in mainline type service being included in the bush rate calculations. This type of flying is totally foreign to bush mail hauling, with its increase in dominance in the pool, it artificially reduces the terminal rate paid for bush mail because of the high departure rates in this type of service. We understand that these are bush aircraft, but the service is unarguably foreign to bush mail hauling. We believe that bush mail rates should be set based on bush mail hauling and thus not strictly on the size of aircraft. This argument may support the question of weighting the pool based on the amount of bush mail carried by each carrier.

There has been much discussion and argument on 'how do we fix the system'. Obviously this discussion assumes that something is broken. The Post Office has suggested that the rates are 'deleterious'. Carriers claim that there are too many carriers allowed to compete thus diluting shares and efficiencies causing financial hardship. Some say that because of all the competition the system encourages a fleet of 'little mosquitos' flying the skies. The passenger carriers say that they are the 'darlings' of the industry and that they should be given preference to the mail. The cargo carriers claim that their service is of equal importance to the system and that actually there is much more logic to the cargo carriers getting preference to the mail because that is their specialty. There is probably a degree of truth in all these statements, but none of them jump out as an overriding argument. We are not convinced that the answer lies in a discussion of rates, efficiencies, finances and who gets a bigger piece of the pie.

If our industry weren't such a safety sensitive industry, it would be logical to sit back and let the parties slug it out and assume that the system will some day find its equilibrium. It is our opinion that the issues involved are too critical to the issue of safety that there lies a better discussion and answers to the questions. Further, that the overriding cause to each and every issue, including the Post Office's claim that rates are too high, is the increasing number of carriers participating in the system.

By:  Arctic Transportation Services, John Eckels

The Department has not updated the Reeve rate in almost 20 years because Reeve never petitioned the Department to make an inflation adjustment. Also, special factors present when the rate was created no longer apply. For example, when the territorial rate was established, Reeve was the only carrier operating in the Aleutians, it did not operate outside the Aleutians, and the aircraft types used by Reeve that were severely weight limited due to the long stage lengths and few alternate airports have since been replaced.

Now, of course, Reeve is not operating scheduled service, while Alaska Airlines and Northern Air Cargo both operate in the Aleutians, but with different aircraft types than Reeve operated. The intra-Alaska mainline rate in some respects now exceeds the Reeve rate, even though the Reeve territorial rate was initially carved out from the rest of Alaska to account for Reeve's higher costs, at the time, of operating in the Aleutians. By letter to the carriers and the Postal Service dated December 19, 2000, the Department affirmed that the Reeve territorial rate would continue to apply in the Aleutians until further Department action, notwithstanding that Reeve had ceased scheduled operations. The letter also requested comments about phasing out the Reeve rate. Options specifically addressed were to end the Reeve rate altogether at a pre-agreed to date; make the higher intra-Alaska mainline priority rate apply to priority mail service in the Aleutians and have the higher Reeve rate apply as the non-priority rate until the nonpriority rate exceeded the Reeve rate; and selectively phase out the Reeve rate in specific markets.

All parties agree that the Reeve territorial rate should end. While Alaska Airlines indicates that it would accept April 1 as the transition date, the Postal Service is silent on the date. However, there is no justification for extending the non-compensatory Reeve rate beyond the time needed for an orderly transition. Service to most markets in the Aleutians is now provided with bush-only aircraft, and so the much higher intra-Alaska bush rate applies. However, at Dutch Harbor Peninsula Airways has equalized to the Reeve rate for its service with bush aircraft. Peninsula is entitled to the higher rate, and by offering a higher rate Peninsula may be able to expand service and reduce some apparent capacity shortfalls in the market. We will therefore terminate the Reeve rate effective five days after the service date of this order, and incorporate the Aleutians in the intra-Alaska mainline and bush mail rate system that is applied to the rest of Alaska.

We note the Postal Service's comment that its primary concern is to ensure that the Aleutians receive reliable and dependable mail service and that the mail rates must be high enough to attract and compensate carriers to serve the more remote, smaller Aleutian communities. In that context, the Postal Service has asked that we meet with it and the parties to discuss market specific contracting and perhaps other options for service in the Aleutians. Given these outstanding issues in the Aleutians and the Postal Service's request, we will arrange to meet with the Postal Service, the carriers, and the State of Alaska to examine mail issues in the Aleutians.

By:  Susan McDermott

By:  Paul Bowers

By:  Susan McDermott

By:  Arctic Transportation Services, John Eckels

By:  Village Aviation, Don King

By:  Susan McDermott

Order 2001-5-3 is tentatively reselecting Ellis Air Taxi, Inc., to provide EAS at Gulkana, May Creek and, McCarthy, Alaska, for a two-year period.

By:  Susan McDermott

By:  Susan McDermott

By:  Susan McDermott

At the Alaska Air Carriers Association Annual Meeting on February 27, mainline carriers that currently carry non-priority bypass mail within the State of Alaska raised concerns about the Postal Service's interpretation of subsection (D)(ii). In addition, DOT has verbally informed the Postal Service that it no longer supports the position that a bush carrier should be allowed to equalize when it has not satisfied that subsection. After further review of this question, the Postal Service solicited comments from interested parties on March 12, 2001. The Postal Service considered those comments in making this decision.

After a lengthy and thorough review, and for the reasons stated below, the Postal Service finds no apparent legal basis upon which to continue the current implementation of United States Code § 5402(g)(1)(D)(ii). The Department of Transportation has concurred with this conclusion.

By:  United States Postal Service, J. Michael Krop

By this order the Department proposes to establish new intra-Alaska mainline mail rates for the year ending September 30, 2002. The rates that are currently in effect were established by Orders 2000-11-9, which finalized the weighting of costs by amount of mail carried on each aircraft type, and Order 2001-4-12, Petition for Reconsideration, which corrected Order 2000-11-9 for revisions in Lynden Air Cargo's data, and Order 2001-6-10, the most recent quarterly fuel update. Those rates, except for the quarterly fuel update, will remain in effect as final .sates through September 30, 2001, or until a final order is issued with respect to the rates proposed here, whichever is later.

As shown in Appendix A, the projected linehaul rate is .32% higher and the terminal is 1.80% lower than the current rates. The small increase in the linehaul element is a result of NAC's and LAC's unit cost increases being offset by the addition for the first time of ACE's relatively low unit costs. The small decrease in the terminal charge is the combined result of a significant decrease in unit cost for NAC and ACE being offset by a significant increase for Alaska Airlines' unit costs. It is not clear what has caused the divergent changes in Alaska Airlines costs and that of the other two carriers, but it is worth noting that the carriers with decreased unit costs are both predominantly all-cargo operators while Alaska Airlines is a combi carrier.

By:  Susan McDermott

By:  John Coleman

By:  United States Postal Service, Samuel J. Schmidt 

Notice of Bidzy Ta Hot Aana Corp. d/b/a Tanana Air Service, of its intent to equalize between Fairbanks and Ruby, Alaska, with lower levels paid to another carrier or combination of carriers in the maket, effective August 13, 2001.

By:  Bidzy Ta Hot Aana Corp, Fred Ciarlo 

Notice of Arctic Circle Air Service, Inc. of its intent to equalize between Fairbanks and Galena, Fairbanks and Hughes, Fairbanks and Huslia, Fairbanks and Kaltag and Fairbanks and Nulato, with lower levels paid to another carrier or combination of carriers in the market effective immediately.

By:  Arctic Circle Air Service, Don Singsaas

Order 2001-9-9 is making its reregular quarterly adjustments to the Intra-Alaska mainline and bush mail rates reflect the most recent quarterly changes in fuel costs, effective October 1, 2001, and reflecting fuel expenses for the QE June 30, 2001, consistent with the methodologies established in Orders 99-12-15 and 2000-5-30. Also, because the 45-day period for objecfions to the mainline rate tentatively proposed in Order 2001-7-1 has expired without objections, the order finalizes the rate along with the updated quarterly fuel cost.

By:  Susan McDermott

By:  Susan McDermott

We understand that there may well be a need for standardization of the reporting due to the fact that all of us over the years have been forced to develop our own ways of reporting the data. We do not believe that it is the right time to do this with all the turmoil going on in this country at the moment. Any of our employees who have been away during the last two weeks have not even managed to get home much less back to work! We also do not believe for one moment that a 30 day lead time for implementation is sufficient to effect anything other than total reporting chaos. It is true that we have had these databases in our hands for the better part of a year and it is also true that we have heard nothing other than an invitation to comment. The word "training" has never been mentioned. It will be argued that since the "old" reporting would remain ongoing there is nothing to be lost. On the contrary it would appear that without the proper training and lead time this "rush" of the T-100 will be chaotic and self-defeating.

If required to do so we will hire somebody else and comply. We always have. We do feel, however, that we would have to maintain two databases in order that the new system be tested for accuracy and such an activity will lead to more errors and doubled work.

This carrier is in total agreement with "maintaining the current bush mail rate until the review is complete, except for quarterly changes in the fuel element" and we would add and "until proven that the T- 100 system is better ( for the smaller carrier) than what we currently have".

By:  Larry's Flying Service, Jean Chenaille

By this order the Department is making its regular quarterly adjustments to the IntraAlaska mainline and bush mail rates to reflect the most recent quarterly changes in fuel costs, effective January 1, 2002, and reflecting fuel expenses for the QE September 30, 2001, consistent with the methodologies established in Orders 99-12-15 and 2000-5-30.

By Order 2001-3-11 the Department established final mail rates for carriage of bush mail for the period April 1, 2001, through March 31, 2002, but provided for the regular quarterly update of the rate for changes in fuel costs. Order 2001-9-9 updated that annual rate to reflect QE June 30, 2001, fuel costs, and this order is again updating the annual rate to reflect QE September 30, 2001, fuel costs.

By Order 2001-9-9 the Department established final mail rates for carriage of mainline mail for the period October 1, 2001, through September 30, 2002, but provided for the regular quarterly update of the rate for changes in fuel costs. As provided in

Order 2001-9-9, we will now update the mainline rate to reflect QE September 30, 2001, fuel costs to reflect the most recent data available.  For the bush carriers, the data in Appendix C-Bush show that fuel costs for the bush have decreased to $90.35 per block hour from the $97.04 level in Order 2001-9-9. This produces a 1.39% decrease in the overall bush linehaul rate as shown in Appendix A-Bush. For the mainline carriers, the data in Appendix C-Main show that fuel costs for the mainline have increased to $.263993 per ATM from the $.250883 level in Order 2001-9-9. For the priority rate, this produces a 1. 96 % increase in the overall mainline linehaul mail rate as shown in Appendix A Main, and 1.95 % in the non-priority. The terminal portion of the mail rate is unaffected by our update of the linehaul for quarterly fuel costs for the bush and the mainline, but for easy reference we have included them in Appendices A-Bush and A-Main. The next quarterly adjustment for fuel costs for mainline and bush carriers would be based on QE December 31, 2001, data and would be effective for the period April 1, 2002, through June 30, 2002.

By:  Read Van de Water

The Postal Service generally agrees with the findings in Order 2001-9-10, has reviewed the filings submitted by other interested parties, and hereby answers in support of the reporting changes proposed in the Order. Given the late acceptance of other parties, the Postal Service asks that this filing be accepted after the filing deadline.

The Postal Service wants to reiterate its support for the data reporting requirements set forth by the Department in Order 2001-9-10. The traffic and expense data being requested by the Department will help all parties, the carriers, the Postal Service, and the Department understand any need for improving the current rate update methodology. As the Postal Service has argued, and the Department has generally agreed, the current rate update methodology may not address changes in operations and costs in Alaska. Having this relevant data on an on-going basis will give all parties transparency into these changes.

The Postal Service agrees that the Department does not wish to unduly burden the carriers with these new reporting requirements. In fact, we fully support the Department's efforts to make these new reporting requirements, while doing away with redundancies, as simple and straightforward as possible. As this improved data becomes available over time, the Postal Service is interested in discussing rate update improvements with both the carriers and the Department in order to develop the most accurate rate possible.

Counsel:  USPS, William Jones

Counsel:  USPS, William Jones, 202.268.3002, wjones8@email.usps.com

By this order the Department makes final the revised reporting requirements on an experimental basis as discussed in order to Show Cause 2001-9-10. Also, the order freezes the bush rate, except for quarterly adjustments in fuel, subject to monitoring by the Department, until the review of the newly reported data can be concluded.

By:  Read Van de Water

By:  Read Van de Water

Alaska Central questions to fundamental rational for the change in Department procedure and that is that fuel prices are no longer as volatile as they were in the recent past. The DOT has not presented any fuel cost data to demonstrate or otherwise validate its conclusion. Further, the increase in U.S. crude oil prices since the beginning of 2002 strongly suggests that pricing variations will continue to be observed in the market. Based on Department of Energy data, the price of a barrel of crude oil jumped from $17.06 in January 2002 to $25.39 in May.  The price of jet fuel is obviously related to the cost of crude oil and Alaska Central assumes that the financial data to be submitted by those carriers in each class on which the Department relies to calculate intra-Alaska mail rates will be reflective of this observed increase in the price of crude oil.

Perhaps, the Department’s observation regarding fuel prices was made based on the decline in the cost of crude oil experienced in the year 2001. While such a decline was experienced in the U.S. market, the fuel rate adjustment procedure was always intended by the DOT to be forward looking and was implemented to avoid the need for potentially large retroactive rate adjustments. Therefore, it is not relevant that calendar year 2001 experienced declines in crude oil prices since the theory supporting fuel price adjustments was to reflect changes in the price of fuel on a more real-time basis.

Counsel:  Silverberg Goldman, Robert Silverberg, 202.944.3300, rsilverberg@sgbdc.com

Larry's Flying Service, Inc. hereby files an objection to the proposal to freeze the fuel rate for the transportation of Intra-Alaska bush mail. In addition Larry's also files an objection to the continuance of the existence of the freeze of bush mail rates implemented at the introduction of the T-100 reporting introduced January 2002.  In our response to the show-cause regarding the implementation of the T-100 reporting system we objected to the new reporting requirements and projected the costs for implementation of this directive. We erred in our projection of these costs .... they turned out to be far higher and more time-consuming than we had originally anticipated. We did not know when we filed this objection that costs would be as high as they were. Many of the carriers have had to purchase new reporting programs at great cost and the training costs for using these programs has been high. We also pointed out that if bush mail rates were frozen at all ( during a short evaluation period) that the quarterly fuel adjustment be exempt. This order serves to rescind that agreement as well.

By:  Larry's Flying Service, Jean Chenaille

The Department's proposal, coming at a time of significant uncertainty over the future cost of fuel, should be rejected. The Department's proposal is troublesome; it adds another element of uncertainty to an already complex environment, even putting aside other well documented dislocating events of the past year. Indeed, the Department's order is not supported by any evidence and is contrary to the best interests of the Postal Service and the Alaska mainline and bush carriers. For these and other reasons, Northern Air Cargo, Inc. opposes the Department's proposal and urges the Department to continue its policy of making quarterly fuel cost adjustments to intra-Alaska mail rates.

We do not agree that prices have stabilized sufficiently to warrant an end to the ongoing quarterly fuel cost adjustments. NAC's Jet A fuel prices hit a peak of approximately 91 cents a gallon in May 2001 and bottomed out at 65 cents a gallon in late 2001. The current price level is at 85 cents. Thus, the amount of increase over the relatively short period from January 2002 to May 2002 is over 30 percent. The comparative averages for the fourth quarter 2001 (the period on which the most recent fuel cost adjustments were based) and April 2002 are approximately 69 cents and 85 cents, a differential of some 23 percent. If fuel prices remain at or above the current level for an extended period, the mainline carriers will again be faced with absorbing substantially higher costs with potentially severe shortfalls in mail rate compensation. That is precisely the situation that the quarterly fuel-cost adjustment schedule was intended to correct.

Counsel:  Lachter Clements, Stephen Lachter, 202.862.4321, lachter@starpower.net

Objects to the Department's tentative decision set forth in Order 2002-4-14 to eliminate the quarterly adjustment of mainline and bush mail rates for changes in fuel costs. That Order recites that fuel costs appear to have both stabilized and decreased to levels approximating those prior to the 1999 fuel spike. Alaska disagrees with the stated conclusion that jet fuel prices have stabilized and, even more relevantly, with the implicit conclusion that the Alaskan carriers, as a class-wide entity, are in any position to absorb the risks of static mail rates in the face of recent indications that fuel price volatility is re-emerging. The upward swings in Alaska's March and April's fuel prices, 8.78 percent and 12.2 percent, respectively, higher than February's fuel prices suggest that the markedly lower fuel prices of the preceding October-February period may not be a bellwether for the coming months. Alaska suggests that the Department postpone its proposed elimination of the quarterly fuel adjustment until there has been a clearer demonstration of a return to price stability.

With the increasing tensions associated with some of the major exporters of crude oil to the United States, there is no circumstantial geopolitical or, more narrowly, fuel cost evidence to support the conclusion that fuel prices have stabilized. To the contrary, Alaska's experience which shows that April's fuel prices were 12.5 percent higher than February's suggests the opposite.

Counsel:  Squire Sanders, Marshall Snick, 202.626.6651, msinick@ssd.com

By this order, the Department makes final our decision to terminate quarterly fuel updates for the mainline carriers as proposed by Order 2002-4-14. For the bush carriers, we defer until further notice the termination of the quarterly update of fuel expense tentatively proposed by Order 2002-4-14, and add insurance costs to fuel as a cost item eligible for quarterly adjustment, as proposed by Arctic Transportation Services and Larry's Flying Service. The Alaska bush and mainline mail quarterly fuel updates were first adopted by Orders 99-12-15 for the mainline and 2000-5-30 for the bush to reflect spikes in fuel prices.

By:  Read Van de Water

Order 2002-9-6, the Department proposes to establish new intra-Alaska mainline mail rates for the year ending September 30, 2003. The rates that are currently in effect were established by Order 2001-9-9, that set the rate for non-fuel linehaul and terminal expenses, and by Order 2002-8-7, that updated the rate for the most recent quarterly fuel costs, and, also proposes to include Lynden Air Cargo's (LAC) terminal costs for the first time.

In this order, we are continuing to use the methodology first implemented in Order 98-7-3, i.e., calculation of a long-term moving average for changes in unit costs to project from the historical base period to the projected rate period, rather than the more volatile year-over-year changes in unit costs. The calculation of the long­term moving average is shown in the regression in Appendix D. The results indicate that, on average over the last ten years, unit costs have increased annually by 4.07% for the non-fuel linehaul and 2.28% for the terminal element.

Also, we are continuing to use the methodology first implemented in Order 2001­11-9 of weighting carrier costs by the amount of mail carried by aircraft type, and of calculating the long-term trend based on the costs of Alaska Airlines and NAC only, because we do not have the costs for the other carriers now in the rate for earlier periods.   We are proposing to fully add LAC to the pool of carriers. In the last update we included only its linehaul expense. LAC operates significant amounts of service outside of Alaska, and there was no way to determine LAC's intra-Alaska terminal costs. For purposes of this update, LAC directly assigned its terminal expenses wherever possible and allocated the residual on the basis of departures. The only carriers now transporting a significant amount of mainline mail that would not be in the mainline pool are ERA Aviation, Inc., and Alaska Central Express, Inc. ERA's data is not broken out between mainline and bush mail volumes, and including Alaska Central Express is even more problematic, because it operates primarily bush equipment. Inclusion of these carriers to the cost pool was discussed in the last update. At this point, we propose not to add either to the cost pool.

By: Read C. Van de Water

Subject to the conditions below, Frontier Flying Service, Inc. gives notice of its election to equalize its otherwise applicable rate for small aircraft in the Anchorage to Aniak market to match, on a total rate per pound basis, the lower rate or combination of rates now in effect or hereafter prescribed and paid to Alaska Airlines, Northern Air Cargo, Lynden Air Transport. Alaska Central Express, Arctic Circle Air Service and Air Cargo Express. and further elects to equalize its otherwise applicable rates in this market to any lower rate or combination of rates prescribed and paid in the future to any other carrier or carriers.

By: Robert Hajdukovich

The Postal Service takes the opportunity to respond to the determinations proposed in Show Cause Order 2002-9-6 issued September 6, 2002. Following established rate update procedures, the order proposes linehaul rates that are 18.55% higher and terminal rates that are 8.77% lower than current rates. The overall impact on the rate (at an average length of haul of 450 miles) is a 6.29% increase. While the increase in the overall rate is a surprise, the Postal Service i