June 2, 2024
Issue 24/07
The leading voice for nonprofits on postal issues for over 44 years.
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A 501 (c)(4) nonprofit organization established by nonprofits for nonprofits.
While we didn’t win the battle in this rate increase proceeding, we laid the groundwork to win the war over postal rate rules.
Below we provide the PRC summary of our comments about denying the rate proposal and the regulator’s response to our comments. In short, the regulator believes that when it promulgated the current rate rules in late 2020, it gave up the opportunity to consider the legal Objectives and Factors that Congress requires of postal ratemaking when considering a USPS rate increase proposal.
The regulator doesn’t require USPS to state how it complies with all the Objectives and Factors when it raises rates. The PRC is saying that it painted itself into a corner that only allows it to check the math of a USPS rate proposal to make sure it complies with the rate cap rules the regulator issued in 2020.
The PRC ruling is replete with comments by the regulator admitting that the current rate rules are a failure and that the PRC looks forward to fixing them in the rulemaking it started in April.
It seems absurd that the regulator cannot consider the bulk of what Congress told it to consider, except when it does periodic rates rulemaking.
As a reminder here are the Objectives and Factors in Title 39:
39 U.S. Code § 3622 – Modern rate regulation
(a) Authority Generally.—
The Postal Regulatory Commission shall, within 18 months after the date of enactment of this section, by regulation establish (and may from time to time thereafter by regulation revise) a modern system for regulating rates and classes for market-dominant products.
(b) Objectives.—Such system shall be designed to achieve the following objectives, each of which shall be applied in conjunction with the others:
(1)
To maximize incentives to reduce costs and increase efficiency.
(2)
To create predictability and stability in rates.
(3)
To maintain high quality service standards established under section 3691.
(4)
To allow the Postal Service pricing flexibility.
(5)
To assure adequate revenues, including retained earnings, to maintain financial stability.
(6)
To reduce the administrative burden and increase the transparency of the ratemaking process.
(7)
To enhance mail security and deter terrorism.
(8)
To establish and maintain a just and reasonable schedule for rates and classifications, however the objective under this paragraph shall not be construed to prohibit the Postal Service from making changes of unequal magnitude within, between, or among classes of mail.
(9)
To allocate the total institutional costs of the Postal Service appropriately between market-dominant and competitive products.
(c) Factors.—In establishing or revising such system, the Postal Regulatory Commission shall take into account—
(1)
the value of the mail service actually provided each class or type of mail service to both the sender and the recipient, including but not limited to the collection, mode of transportation, and priority of delivery;
(2)
the requirement that each class of mail or type of mail service bear the direct and indirect postal costs attributable to each class or type of mail service through reliably identified causal relationships plus that portion of all other costs of the Postal Service reasonably assignable to such class or type;
(3)
the effect of rate increases upon the general public, business mail users, and enterprises in the private sector of the economy engaged in the delivery of mail matter other than letters;
(4)
the available alternative means of sending and receiving letters and other mail matter at reasonable costs;
(5)
the degree of preparation of mail for delivery into the postal system performed by the mailer and its effect upon reducing costs to the Postal Service;
(6)
simplicity of structure for the entire schedule and simple, identifiable relationships between the rates or fees charged the various classes of mail for postal services;
(7)
the importance of pricing flexibility to encourage increased mail volume and operational efficiency;
(8)
the relative value to the people of the kinds of mail matter entered into the postal system and the desirability and justification for special classifications and services of mail;
(9)
the importance of providing classifications with extremely high degrees of reliability and speed of delivery and of providing those that do not require high degrees of reliability and speed of delivery;
(10) the desirability of special classifications for both postal users and the Postal Service in accordance with the policies of this title, including agreements between the Postal Service and postal users, when available on public and reasonable terms to similarly situated mailers, that—
(A) either—
(i)
improve the net financial position of the Postal Service through reducing Postal Service costs or increasing the overall contribution to the institutional costs of the Postal Service; or
(ii)
enhance the performance of mail preparation, processing, transportation, or other functions; and
(B)
do not cause unreasonable harm to the marketplace.
(11)
the educational, cultural, scientific, and informational value to the recipient of mail matter;
(12)
the need for the Postal Service to increase its efficiency and reduce its costs, including infrastructure costs, to help maintain high quality, affordable postal services;
(13)
the value to the Postal Service and postal users of promoting intelligent mail and of secure, sender-identified mail; and
(14)
the policies of this title as well as such other factors as the Commission determines appropriate.
(d) Requirements.—
(1) In general.—The system for regulating rates and classes for market-dominant products shall—
(A)
include an annual limitation on the percentage changes in rates to be set by the Postal Regulatory Commission that will be equal to the change in the Consumer Price Index for All Urban Consumers unadjusted for seasonal variation over the most recent available 12-month period preceding the date the Postal Service files notice of its intention to increase rates;
(B)
establish a schedule whereby rates, when necessary and appropriate, would change at regular intervals by predictable amounts;
(C) not later than 45 days before the implementation of any adjustment in rates under this section, including adjustments made under subsection (c)(10)—
(i)
require the Postal Service to provide public notice of the adjustment;
(ii)
provide an opportunity for review by the Postal Regulatory Commission;
(iii)
provide for the Postal Regulatory Commission to notify the Postal Service of any noncompliance of the adjustment with the limitation under subparagraph (A); and
(iv)
require the Postal Service to respond to the notice provided under clause (iii) and describe the actions to be taken to comply with the limitation under subparagraph (A);
(D)
establish procedures whereby the Postal Service may adjust rates not in excess of the annual limitations under subparagraph (A); and
(E)
notwithstanding any limitation set under subparagraphs (A) and (C), and provided there is not sufficient unused rate authority under paragraph (2)(C), establish procedures whereby rates may be adjusted on an expedited basis due to either extraordinary or exceptional circumstances, provided that the Commission determines, after notice and opportunity for a public hearing and comment, and within 90 days after any request by the Postal Service, that such adjustment is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States.
PRC Order 7155, Docket No. 2024-2, May 30, 2024
PRC Description of ANM Comments (page 40)
Comments. ANM states that this is the sixth price increase since the modified Market Dominant ratemaking system and related regulations went into effect. ANM Comments at 1. ANM asserts that this is the largest price increase yet and comes at a time when the Postal Service holds $18.2 billion in cash, service performance standards are not being met, and volumes and revenues are declining. Id. at 1-2. ANM states that with the increases proposed in this proceeding, the compounded increases from January 2021 through July 2024 at the product level are “staggering, ranging from 29 percent to over 83 percent[,]” with “the compounded price increases on the mail products nonprofit organizations purchase [being] especially acute.” Id. at 2 (emphasis omitted). ANM acknowledges that the Commission has opened a proceeding to review the Market Dominant ratemaking system and underlying regulations in Docket No. RM2024-4 and urges the Commission “to impose a moratorium on . . . market-dominant rate increases (or, at a minimum, a moratorium on above-CPI rate increases) until the completion of the RM2024-4 review” to maintain the status quo and prevent the objectives of the rulemaking from being frustrated. Id. at 7-8.
PRC Responses to ANM Comments (pages 50-55)
With respect to ANM’s suggestion that the Commission impose a moratorium on Market Dominant price increases (or limit them to be based on inflation) during the pendency of Docket No. RM2024-4, the Commission declines to adopt that suggestion because it has no statutory or regulatory basis to do as ANM suggests. See ANM Comments at 8. Nothing in title 39 of the United States Code or the regulations permits the Commission to suspend the Postal Service’s ability to use the rate authority granted to it pursuant to 39 C.F.R. part 3030, and as a result, the Commission is obligated to enforce the regulations as currently in effect. The regulations currently in effect grant the Postal Service the rate authority being utilized in this proceeding (and that will be utilized in future proceedings during the pendency of Docket No. RM2024-4), and this Order finds that the Postal Service is using that rate authority consistently with applicable law as defined in 39 C.F.R. § 3030.126(b) in this proceeding. Thus, the Commission has no basis to impose a moratorium on Market Dominant price increases during the pendency of Docket No. RM2024-4, including a moratorium on the price increases proposed in this proceeding.
Comments. ANM asserts that “[t]he proposed adjustments are inconsistent with applicable statutory and regulatory requirements” and that “the Commission has the legal authority to reject them and should do so.” Id. at 1. Specifically, ANM asserts that the Commission has legal authority pursuant to 39 U.S.C. § 503 and its obligation to ensure that proposed rates comply with 39 U.S.C. § 3622 to reject the proposed price increases. Id. at 3. Although ANM appears to disagree with the Commission’s conclusion in prior price adjustment proceedings that its review in price adjustment proceedings is limited to ensuring that the proposed prices comply with applicable law as defined in 39 C.F.R. § 3030.126(b), ANM asserts that the Postal Service failed to demonstrate consistency with 39 C.F.R. part 3030 and further asserts, citing 39 C.F.R. § 3030.126(i), that noncompliant rates cannot go into effect. Id. at 4-5. Specifically, ANM cites to 39 C.F.R. § 3030.121(b), which states that “[t]he Postal Service shall take into consideration how the planned rate adjustments are in accordance with the provisions of 39 U.S.C. chapter 36.” Id. at 5; 39 C.F.R. § 3030.121(b). ANM argues that the regulation requires the Commission to “determine whether the Postal Service considered how its planned rate hikes are in accordance with 39 U.S.C. chapter 36 – including the objectives and factors in 39 U.S.C. § 3622(b) and (c)” in determining compliance with 39 C.F.R. part 3030. ANM Comments at 5-6. ANM asserts that the Postal Service failed to consider 39 U.S.C. § 3622(b) and (c) because the Notice “entirely ignores 39 U.S.C. § 3622[,]” and therefore “the Commission can reject the proposed rate increases on that basis.” Id. at 6.
ANM discounts the Postal Service’s mentions of “financial stability” and “service excellence” related to the Delivering for America (DFA) plan in the Notice, stating that even if they are intended to demonstrate compliance with two objectives of 39 U.S.C. § 3622(b), “the Commission can see for itself that the DFA plan and these maximum-authority rate adjustments have not achieved” service excellence or financial stability with recent service failures and recent and expected mail volume declines and financial losses. Id. at 6-7 (emphasis omitted). ANM concludes that “[t]he Postal Service clearly has not taken into account how its proposed price increases accord with these requirements of 39 U.S.C. chapter 36, nor with any of the chapter’s other requirements” and claims “it would be a dereliction of duty for the Commission to approve the proposed rate adjustments.” Id. at 7.
PostCom states that the rates proposed by the Postal Service do not “further the Objectives of 39 U.S.C. § 3622(b).” PostCom Comments at 1. PostCom suggests that although the Board of Governors of the Postal Service should not have approved the proposed price increases, the Commission should now reject the price increases “to prevent further damage to the Postal Service and the constellation of companies that exist perilously in its orbit.” Id. at 4. Citing to the ANM Comments, PostCom agrees that “the Commission should take a more proactive role in this docket than it has when reviewing prior rate proposals and exercise the general authority granted to it by 39 U.S.C. § 503 to direct the Postal Service to revise or withdraw its proposed rates.” Id. at 2. PostCom notes that although the 39 U.S.C. § 503 authority “is not unlimited, it must encompass taking actions beyond rulemakings to ensure that postal rates further the goals, purposes, and objectives of [the] PAEA.” Id. at 4.
Commission analysis. ANM’s primary argument is that the Postal Service fails to comply with 39 C.F.R. part 3030 because the Postal Service fails to comply with the regulation that states that “[t]he Postal Service shall take into consideration how the planned rate adjustments are in accordance with the provisions of 39 U.S.C. chapter 36” by inadequately addressing 39 U.S.C. § 3622, and the objectives of 39 U.S.C. § 3622(b) and factors of 39 U.S.C. § 3622(c) in particular, in its Notice. ANM Comments at 5-7; 39 C.F.R. § 3030.121(b). ANM asserts that because the Postal Service failed to take 39 U.S.C. § 3622 into consideration as required by 39 C.F.R. § 3030.121(b), the Commission can and should reject the proposed price increases. ANM Comments at 6.
In a previous rate adjustment proceeding, commenters raised similar allegations regarding non-compliance with 39 C.F.R. § 3030.121(b) based on the Postal Service’s initial filing. See Order No. 5937 at 72. In interpreting 39 C.F.R. § 3030.121(b) in response to these comments, the Commission stated that the regulation requires the Postal Service to “take into consideration how the planned adjustments are in accordance with the provisions of 39 U.S.C. chapter 36” but that “[i]t does not, however, impose any related filing or other requirements on the Postal Service related to that provision in rate adjustment proceedings.” Id. (citing 39 C.F.R. §§ 3030.121(b), .122, .123). The Commission thus concluded in that proceeding that there were “no grounds to reject the Notice for non-compliance with 39 C.F.R. § 3030.121(b).” Id. at 72-73.
In another previous rate adjustment proceeding, the Commission addressed the Postal Service’s obligations under 39 C.F.R. § 3030.121(b) vis-à-vis consideration of the objectives and factors of 39 U.S.C. § 3622(b) and (c) in response to comments raised by ANM in that proceeding. See Order No. 6526 at 37. In that proceeding, the Commission found that “[a]lthough, as ANM acknowledges, the Postal Service must take into consideration how the planned rate adjustments are in accordance with 39 U.S.C. chapter 36, there is no further obligation imposed on the Postal Service by the regulations of 39 C.F.R. part 3030 related to the objectives and factors of 39 U.S.C. § 3622(b) and (c).” Id. The Commission further explained in that order that “as part of the modified ratemaking system the Commission designed in Docket No. RM2017-3, the Commission proposed and, after notice and comment, finalized changes to the rules. The Commission declines to change its previous interpretation of 39 C.F.R. § 3030.121(b) or its decision in Docket No. RM2017-3 to discontinue the consideration of the objectives of 39 U.S.C. § 3622(b) and factors of 39 U.S.C. § 3622(c) in rate adjustment proceedings. To the extent that ANM, PostCom, and GCA are advocating the Commission revisit these issues, the Commission notes that they are outside the scope of this proceeding and would be more appropriately addressed in Docket No. RM2024-4. ANM is correct that 39 C.F.R. § 3030.121(b) requires the Postal Service to take into consideration how the planned rate adjustments are in accordance with 39 U.S.C. chapter 36; however, there are no specific filing requirements related to that requirement in 39 C.F.R. §§ 3030.122 and .123 or elsewhere in 39 C.F.R. part 3030 and consideration of the objectives and factors of 39 U.S.C. § 3622(b) and (c) in rate adjustment proceedings was explicitly discontinued as a result of Docket No. RM2017-3. Thus, the Commission concludes that it does not have a basis for rejecting the proposed rate adjustments for non-compliance with 39 C.F.R. part 3030 as ANM advocates.
To the extent that ANM and PostCom advocate that the Commission should use its authority to “take any other action . . . deem[ed] necessary and proper to carry out [its] functions and obligations to the Government of the United States and the people as prescribed under . . . [title of the United States Code]” to reject the proposed rates, the Commission reminds ANM and PostCom that 39 C.F.R. part 3030 calls for a narrow review in this proceeding, with the Commission’s role being limited to reviewing planned price adjustments for consistency with applicable law as defined in 39 C.F.R. §3030.126(b).36 The regulations of 39 C.F.R. part 3030 currently in effect define the Commission’s and Postal Service’s functions and obligations with respect this proceeding, and 39 U.S.C. § 503 does not permit the Commission to unilaterally override regulations that were put into effect through notice-and-comment rulemaking without notice or comment. Although ANM is correct that non-compliant rates cannot go into effect, the Commission finds in this Order that the proposed rates are consistent with applicable law and therefore does not have a basis, even under the broad authority of 39 U.S.C. § 503, to reject the proposed rates.