Postal Rate Hikes Rejected By PRC

September 30, 2010       Mark Hrywna      

The Postal Regulatory Commission (PRC) has rejected the United States Postal Service’s (USPS) request for an average 5.6-percent rate hike next year. It’s the first time PRC ruled on an exigent rate case under the Postal Accountability and Enhancement Act of 2006 (PAEA) and the decision by the five-member panel was unanimous.

While conceding that postal volume and revenue have declined dramatically in recent years, the PRC said the Postal Service’s cash flow problem “would have occurred whether the recession took place or not,” and the exigent rate case adjustments “represent an attempt to address long-term structural problems not caused by the recent recession,” PRC Chairman Ruth Goldway said in a statement.

“The commission finds that the Postal Service has shown the recent recession to be an exigent circumstance but it has failed both to quantify the impact of the recession on its finances and to who how its rate request relates to the resulting loss of mail volume,” Goldway said. The PRC’s analysis indicates that as the recession fades, mail volume appears to be rebounding.

“This is the biggest victory for mailers…in a long, long time. I can’t remember anything bigger than this,” said Tony Conway, executive director of the Washington, D.C.-based Association of Nonprofit Mailers, and a spokesman for the Affordable Mail Alliance. “It’s a hard-fought victory. I never expected it to be honest when we started but we’ve come a long way in a short period of time,” he said.

The Affordable Mail Alliance, a coalition of more than 1,200 nonprofits, trade associations, consumer groups and businesses large and small, was formed after the USPS filed its rate case in July. The alliance said the decision will benefit the Postal Service in the long run and is good for businesses. “The PRC today has helped countless businesses stay competitive and saved tens of thousands of jobs,” said Conway.

In response to dwindling mail volume and annual budget shortfalls in the billions of dollars, USPS reduced costs by more than $6 billion last year. The Postal Service, which ended its third quarter in June with a net loss of $3.5 billion compared with $2.4 billion the same quarter in 2009, argued in its filing that the primary cause of its liquidity crisis was “structural and related to an overly ambitious requirement to prefund its future retiree health benefit premiums.”

Analysis by the PRC, however, confirmed that the cash flow problem instead was a result of “other, unrelated structural problems and the rate adjustments would neither solve nor delay those problems.” Even with the requested increase, the Postal Service would be unable to meet its annual obligation of roughly $5.5 billion in 2011 and succeeding years of a 10-year payment schedule. “It has been unable to fund this obligation from operations, and has instead used up all of its retained earnings and drawn down from its $15-billion borrowing authority,” the PRC said.

In a statement released hours after the PRC’s decision, Postmaster General John Potter expressed disappointment in the decision but was encouraged by the “acknowledgement and understanding of the larger financial risk we face through the mandated prefunding of retiree health benefits.”

The USPS now must decide whether to appeal the decision to the courts, whether to re-file another exigent rate hike request, or file a regulate rate increase that falls within the CPI, which has been creeping up toward 2 percent this year. The Postal Service will review the ruling to “make an informed decision about what options we have and what may be the best course for our customers, our employees, our stakeholders and the American public,” Potter said.

“Clearly, the Postal Service is a viable business,” he said. “Maintaining that status requires elimination of several legislatively-imposed constraints that hamper our ability to operate efficiently and profitably,” said, outlining six specific things USPS should be allowed to do (and which legislation in Congress has been introduced to address):

Alter frequency of delivery consistent with the use of mail

Close unprofitable post offices

Restructure obligation to prefund retiree health benefits

Create and offer products and services beyond mail

Assure that arbitrators consider the financial health of the USPS when agreement can’t be reached with labor unions

Resolve overfunding of pension systems.

Goldway said commissioners were aware since USPS announced its intention to file the case in March that the process was unprecedented and whatever decision made would be controversial. The Postal Service filed the case in July and the PRC expedited a 90-day review process.

PAEA allowed USPS to request rate increases above the rate of inflation, which last year was less then 1 percent, if it can show it is “due to extraordinary or exceptional circumstances; it’s reasonable, equitable and necessary under best practices of honest, efficient and economical management; and, it’s necessary to maintain and continue of postal services of the kind and quality adapted to the needs of the United States.”