USPS Takes Some Pricing Uncertainty off the Table
Alliance Report – October 7, 2014
In our previous issue on Wednesday, September 24 we wrote: “Since our last issue, we received the latest price cap information that normally would provide predictability to customers trying to budget for next year’s mailings. Unfortunately, the guesswork hanging over postage rates is about as high as it has been in recent memory, and not good given the precarious nature of our mail system. And it will only be resolved gradually over the coming weeks and months by independent decisions to be made by three government entities.”
A week later on Wednesday, October 1, we reported at noon on our social media: “PMG Donahoe said this morning that USPS will not be filing for a price change in January. He stated that they would wait until after the first of the year to decide considering the court’s decision on the exigent case. The earliest a price increase would be in March or early April.”
Later on the afternoon of October 1, the Postal Service issued the following official statement:
“U.S. Postal Service to Maintain Current Product and Service Prices October 1, 2014- The Governors of the U.S. Postal Service have decided not to seek a price change for mail and shipping products and services in January in part because of the uncertainty regarding the exigent price increase. This means that the current pricing of postal products and services will remain in effect through the holiday season and early part of 2015. The Board will continue to evaluate pricing strategies and will communicate about any potential price change filings in early 2015. As always, the Postal Service will provide customers advance notice of any price changes.
The Alliance appreciates that the Governors took a significant portion of pricing uncertainty off the table by making this important decision and announcement. Now nonprofit mailers can safely plan for the fall, holiday, and year-end contributions mailing seasons knowing what their postage bills will be. And make no mistake about it; this is a good business decision for the Postal Service too. Uncertainty is a business-killer for both the customers and the supplier.
Much uncertainty about USPS pricing in 2015 and beyond remains because of the pending appeals court decision on the exigent rate surcharge of 4.3 percentage points that customers are currently paying. With the oral arguments on September 9 that we reported in our newsletter the next day, the timing and substance of the court decision remain in doubt for all concerned. The USPS chose to ramp up the uncertainty when they decided to appeal the Postal Regulatory Commission (PRC) ruling that the recovery of lost revenue from the recession should be limited. The USPS Governors want the surcharge to be permanent and yield a present value of approximately $60 billion versus the $3.2 billion that the PRC ruled appropriate.
While it now appears safe to plan for this fall and winter, we expect a court decision coming most likely no later than early December 2014. Not only is the court decision uncertain, but the reactions of the PRC, USPS and postal customers are also unknown. Speculation can be mind- numbing, but here possible paths to an outcome:
- The court accepts the PRC ruling; PRC does nothing; and USPS most likely times the next CPI increase for the likely August or September 2015 rescission yielding a net average rate reduction of roughly 1 to 2%. To get the business benefit of predictability, it would be important for the Governors to make and announce this decision soon after the court decision. This path is most likely the best outcome for customers and, we believe, the long-term health of the postal business.
- As an alternative to #1, the Governors could make a 90 day CPI increase announcement right after the court decision upholding the PRC opinion. Then we would face an increase north of 1.58% in March or April 2015, followed by a 4.3% reduction in August or September 2015. Would the Governors view those 5 to 7 months of extra revenue as worth the cost and volatility of two price changes that close to each other? We hope not.
- The court remands the case back to the PRC to improve its methodology and justification for the cap on exigent revenue; the PRC begins a months-long proceeding with uncertain outcome but likely extension of exigent revenue; and USPS has a tough decision. It could give 90 days notice of a CPI increase in March or April 2015; it could announce a hold on the CPI increase decision pending the PRC proceeding; or it could commit to deferring the next CPI increase until January 2016. This path would greatly heighten uncertainty for customers, although the USPS could mitigate some by deferring the next CPI increase.
- The court accepts the USPS argument that the cap on exigent revenue is arbitrary and capricious and rules that there will be no cap and the surcharge will be permanent. The USPS would choose between a 90 day CPI increase announcement and a deferral until later, most likely January 2016. While the $60 billion permanent surcharge is what the Governors are seeking, we believe this disaster outcome is very unlikely.
We’re rooting for #1. And to be sure our legal counsel, David Levy, put on an excellent case on behalf of a large coalition of USPS customers.