June 28, 2021

In a filing today at the Postal Regulatory Commission, the Alliance made clear that the recent record rates filing by USPS is unlawful and should be rejected by the regulator.  The PRC to date has been ignoring the voice of the customer in its proceedings leading up to these disastrous rate increases scheduled for August 29, 2021.  We expect a regulatory decision in mid-July.

The proposed rate hikes average 6.8 percent for “compensatory products” and 8.8 percent for “noncompensatory.”  These unprecedented increases are on top of the inflation-capped hikes of 1.8 percent for First Class Mail and 1.5 percent for other categories already implemented in January.

We are including a copy of our comments with this Alliance Report, and providing excerpts below:

This rate case is the regrettable, but predictable, culmination of the Postal

Service’s decade-plus campaign to deregulate the sale of its market-dominant products,

and the Commission’s acquiescence to that campaign. The USPS Notice contemplates

market-dominant price increases that would be larger than any experienced by mailers

during the PAEA era by far. And these would be the second market-dominant price

increases charged to captive mailers in a span of seven months – deviating from the

predictable January price increases that more easily enabled mailers to budget for the

coming year. The Commission must not allow the proposed price increases to go into

effect: they violate PAEA’s statutory requirements and they are inconsistent with

numerous statutory objectives and factors that the Commission must consider when

issuing its order in this case.

The Proposed Price Changes Are Unlawful and Violate Congress’ Statutory

Policies As Codified in PAEA

The Commission cannot rubber-stamp these noticed price hikes. It must

carefully consider “whether the planned rate adjustments are consistent with applicable

statutory policies,” see 39 C.F.R. § 3030.122(j), and it must not allow the planned rate

adjustments to go into effect if they “are found to be inconsistent with applicable law.”

Id. at § 3030.126(i). This means that the Commission “must apply the relevant

objectives and factors to individual rate adjustments” such as this one. Carlson v. PRC,

938 F.3d 337, 344 (D.C. Cir. 2019). Moreover, the Commission must respond to

comments “that can be thought to challenge a fundamental premise” underlying the

proposed agency decision in order to comply with the Administrative Procedure Act. Id.

Above-CPI Price Increases Remain Illegal

The Postal Service’s proposed market-dominant price changes are illegal. They

violate the straightforward, unambiguous language that Congress drafted when it

enacted PAEA: as a statutory “requirement,” “[t]he system for regulating rates and

classes for market-dominant products shall … 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.” 39 U.S.C.

• 3622(d)(1)(A) (emphasis added). Class-wide price increases of approximately 6.8

percent above CPI for compensatory market-dominant products and approximately 8.8

percent above CPI for noncompensatory market-dominant products violate the law.

To Effectuate Congress’ Postal Policy, the Commission Must Safeguard Market-

Dominant Mailers from Monopoly Abuses

When Congress enacted PAEA, it was keenly aware of the Postal Service’s

statutorily granted monopoly over the delivery of letters and access to the mailbox.

Shielding mailers against potential abuses of the Postal Service’s

market power was Congress’ expressed policy. The Senate Governmental Affairs

Committee Report explains:

In establishing the postal regulatory structure in the bill, the

Committee has attempted to balance the Postal Service’s

need for additional flexibility with the public and mailing

community’s need for increased financial transparency and

established safeguards to protect against unreasonable use

of the Postal Service’s statutorily-granted monopoly.

Congress determined that a price cap on market-dominant price increases was

the appropriate mechanism to accomplish its goals. But the Postal Service quickly

chafed at any price regulation over the agency’s market-dominant products. In

regulatory filings, it asserted that “the price cap should be eliminated” and that “the PRC

should engage in after-the-fact, light-touch review of Market-Dominant prices we set.”

Free from competitive constraints or stringent regulation, a monopolist’s

incentives are to raise price and reduce output or quality. Consider this: the Postal

Service’s productivity has declined in each of the past five years. USPS FY2020

Annual Report to Congress (May 14, 2021) at 53. It failed to meet all of its service

performance targets in FY2020. Id. at 35. It has proposed to further degrade service

performance standards for market dominant products. See generally PRC Docket No.

N2021-1 (opened Mar. 23, 2021). And yet it has elected to utilize all of the

supplemental pricing authority given to it by the Commission, despite both its and the

Commission’s assurances that the Postal Service could use its “discretion” or “business

judgment” not to use all of the rate authority provided by the Commission’s final rules.

See, e.g., Order 5763 (Nov. 30, 2020) at 313-14.

The Proposed Maximum-Authority Price Increases Violate Statutory Policies

The Postal Service’s actions violate PAEA’s policies, which codify Congress’

desire to protect mailers from the very type of monopoly abuse seen here. The massive

above-CPI price increases proposed by the Postal Service violate the statutory

objective of achieving just and reasonable rates. 39 U.S.C. § 3622(b)(8). And providing

the Postal Service with unprecedented levels of pricing power will weaken, not

“maximize,” incentives to reduce costs and increase efficiency. Id. at (b)(1).

Moreover, the Postal Service generally made presort discounts as low as

possible while still complying with the Commission’s new rules. The Postal Service

applauds itself for raising Periodicals workshare discounts that had previously fallen

well-below 100 percent and “bringing them into compliance with 39 C.F.R. § 3030.284.”

USPS Notice, at 22. But these new discounts barely meet the PRC’s new workshare

requirements – either raising the existing discount by 20 percent or setting the

passthrough at 85 percent – and they are still well below their corresponding avoided

costs.

A careful analysis of the proposed rate changes beneath the class level also reveals

that, within Marketing Mail, huge price increases—as much as 26 percent for nonprofit

flats and 14 percent for commercial flats—will be levied on highly-efficient, High Density

Carrier Route mail entered at the Sectional Center Facility (SCF). These price increases will disincentivize co-mailing, a practice that substantially reduces Postal

Service costs. These pricing and discount proposals are inconsistent with the key

statutory policy of maximizing incentives to increase efficiency.

When the Commission gives the Postal Service any leeway at all, the Postal

Service will take advantage of this largesse with respect to rates (charging its customers

the maximum possible) and with respect to discounts designed to encourage efficient

mail preparation (in which case it will provide the minimum allowable). Simply put, the

Commission cannot trust the Postal Service to exercise discretion, prudence, or

judicious business judgment. The Commission’s function as regulator is to implement

Congress’ policies – doing so here requires rejection of the proposed price increases.

Conclusion

We have for years urged the Commission in rate cases to require more efficient

pricing decisions from the Postal Service. We continue to do so here. However,

because the Commission’s final rules in the ten-year review proceeding have granted

the Postal Service significant above-CPI pricing authority, the stakes are far higher now.

The Commission must reject the Postal Service’s proposed rate increases: they are

unlawful, they are inconsistent with PAEA’s objectives, and they are neither judicious

nor prudent. The Postal Service has shown that if the Commission gives it an inch, the Postal Service will take a mile. As regulator, the Commission must safeguard mailers

from this abuse of market power.

A number of members of the Alliance of Nonprofit Mailers also are filing comments in opposition to the USPS rate hikes, and they can be found in the PRC Daily Listing for June 28, 2021, and perhaps later dates if comments were mailed via USPS.