Alliance Alert: The CPI-Based Rate Increase

The 2006 legislation allows the Postal Service to increase rates on captive mail products as needed to recover inflation as measured by the CPI. The Postal Service filed a request for such a rate increase in September 2013. While most rate adjustments of this kind are largely unopposed, this one was controversial.

The reason was the Postal Service’s previously announced plan to mandate the use of Full Service IMb barcodes on all mail entered in the automation categories of Standard Mail, Periodicals Mail, First-Class Mail and Bound Printed Matter, effective in mid-2014. Mailpieces not meeting these requirements would be eligible only for higher non-automation prices. The issue in Docket No. R2013-10 was what assumptions to make about the percentage of pieces that will qualify for automation prices when determining whether the Postal Service’s proposed rates comply with the CPI cap. The Postal Service assumed in its filings that all mail volume that was entered at automation rates in the most recent year for which billing determinants are available, whether or not the pieces met Full Service IMb requirements, would remain eligible for automation rates under the new requirements.

On October 31, ANM, joined by a coalition of other mailer groups, filed comments arguing that this assumption violated Commission regulations requiring that CPI cap compliance be evaluated based on actual historical billing determinants for the most recent available 12 month period. The Postal Service’s failure to comply with this requirement, ANM and its allies argued, would produce revenues exceeding the CPI cap by close to $1 billion per year.

The Commission issued its decision in November 2013. The Commission agreed with ANM and its allies that the Postal Service’s treatment of the revenue implications of the Full Service IMb mandate was incorrect. The Commission ordered the Postal Service, if it chose to proceed with the mandate, to reduce its overall rate increase to offset the additional revenue that the Postal Service would earn if under existing levels of Full Service IMb usage.

The Postal Service responded by announcing that it was deferring implementation of the Full Service IMb until after 2014, and by challenging the Commission’s decision in the U.S. Court of Appeals.

In July 2014, a coalition of mailers including the Alliance filed a brief in defense of the decision. Oral argument is expected in early 2015.