December 19, 2017

The entire mailing world is in a state of shock over the December 1 proposal rolled out by Postal Regulatory Commission Chairman Robert Taub. It seems like complete capitulation by the very agency whose mission is to protect captive customers from abuses by the Postal Service monopoly that the PRC regulates. But it is important to know that the great Yogi Berra’s statement is right on-point in this terrible situation.

Here are three reasons to hold out hope:

1. It won’t work.
2. Weak consensus on the PRC.
3. Likely to go to court.

A very unfortunate reality is the uncertainty for the very mailers needed to keep USPS thriving will continue indefinitely, as will Postal Service litigation against its customers.

1. The proposal just won’t work!

The idea of raising rates 30 to 40 percent over the next five years, or almost four times the rate of inflation, does not work on its face. This much is clear to all involved in mailing on behalf of organizations and businesses. That dog won’t hunt.

In a world where most business and nonprofit costs and revenues are limited to less than the Consumer Price Index, the concept that they will stay in the U.S. Mail with these kinds of increases, to any degree close to current volumes, is a non-starter. It just ain’t going to happen. It is obvious to all involved in the mailing world. The proposal must change drastically to have any chance of working.

2. There is not a strong consensus on the PRC for this thing.

In a surreal “press conference” on December 1, the PRC proposal was announced by only one of the four sitting Commissioners. Chairman Robert Taub read a written statement and walked out without taking questions, as the audience sat in stunned silence with only a smattering of applause. The other three Commissioners were nowhere to be seen.

It became clearer when everyone started reading the nearly 200-page NOTICE OF PROPOSED RULEMAKING FOR THE SYSTEM FOR REGULATING RATES AND CLASSES FOR MARKET DOMINANT PRODUCTS.

Each of the other three Commissioners issued their own statements that indicated varying degrees of discomfort, opposition, and hopes that the comment process will make the proposal at all workable. Their comments are very much worth reading by anyone affected by the PRC proposal.

Vice Chairman Mark Acton expressed the point that while the Postal Service needs many reforms, the PRC has only one tool at its disposal: pricing. He held out hope that the “mailing community” will provide factual evidence to support changes and improvements in the PRC proposal:

SUPPLEMENTAL VIEWS OF VICE CHAIRMAN MARK ACTON

The United States Postal Service faces tests in nearly every conceivable

scenario as it, a venerable institution instrumental in the founding of our Nation, moves further into the 21st century. Many of the Postal Service’s greatest challenges are not a primary result of the rates that it charges its customers and partners. Comprehensive legislative reform is best suited for brokering compromise and tailoring outcomes in this landscape where such divergent interests must coexist. The last few years have seen significant bipartisan efforts in Congress to craft such reform, and it has yet to come to fruition. The Commission does not have the ability to allow the Postal Service to reamortize unfunded liabilities, administer employee benefits differently, change the frequency of delivery, or deliver profitable items restricted by statute. In short, there is no action the Commission can take to substitute for meaningful legislative reform, and I urge Congress to continue to work toward that goal.

The Commission, however, cannot shirk its lawful responsibility to review and, if

necessary, propose and implement regulations to address flaws in the market dominant ratemaking system. If the Commission determines that the PAEA’s range of objectives are not being met, the law empowers the Commission to attempt improvements via the use of one tool alone—reform to the system for regulating rates and classes for market dominant products. In other words, this singular device—the ratemaking system—may be wielded by the regulator in an effort to achieve these objectives.

The Commission, including its expert legal and technical staff, has undertaken a time and resource intensive effort to review the previous 10 years’ experience under the PAEA and chart a path forward that is responsive to its statutory duty. I have the highest regard for the Postal Service and its customers. As a Postal Rate and Postal

Regulatory Commissioner, my record is replete with examples of my concern for postal customers’ interests and sensitivity to rate adjustments. I look forward to hearing from the mailing community with comments that demonstrate, based on solid quantitative technical and well-supported legal analysis, how the Commission’s proposal may be improved.

Mark Acton

Commissioner Nanci Langley similarly said that the proposal is but one approach, and she hopes the comment process will yield “a ratemaking system that provides the necessary balance to ensure the financial viability of the Postal Service with affordable and predictable rates for ratepayers.”

SUPPLEMENTAL VIEWS OF COMMISSIONER NANCI E. LANGLEY

As the Commission has recognized in its annual reports to the President and Congress, there is a tension between the restrictions of an inflation-based price cap on market dominant price increases and the objectives established in section 3622(b), in particular, the objective that the Postal Service has adequate revenues and retained earnings in order to maintain financial stability. This instant rulemaking proposes one approach to regulating market dominant rates, which may satisfy the objectives of the PAEA. However, it is only one of many possible approaches. Interested parties, especially users of the mail, now have an opportunity to critique this approach and/or propose alternative solutions through the comment and reply comment periods.

 For this reason, I approve moving forward with this rulemaking and will continue to work actively in establishing a ratemaking system that provides the necessary balance to ensure the financial viability of the Postal Service with affordable and predictable rates for ratepayers.

Nanci E. Langley

Finally, Commissioner Tony Hammond expressed his firm opposition to the proposal, and the wish that the comment process will yield something workable and fair. Commissioner Hammond correctly pointed out that “he proposed changes elevate the financial stability objective above the others.” He also expressed that the proposal gives USPS the benefits of both the old 1970-2006 system and the current 2006-2017 process without any of the sacrifices or controls.

DISSENTING VIEWS OF COMMISSIONER TONY HAMMOND

I respectfully disagree with the Commission’s decision to propose the changes contained in this Order because, rather than balancing all the objectives of 39 U.S.C. 3622, the proposed changes elevate the financial stability objective above the others.

 As I explained in my concurring statement to Order No. 4257, the existing ratemaking system has not provided the Postal Service with revenues adequate to maintain financial stability. However, I have also concluded that a significant portion of the Postal Service’s financial instability results from an overly aggressive retiree health benefits prefunding schedule—which warrants a legislative solution—and from the Postal Service’s decision in 2007 not to pursue the final cost-of-service rate increase authorized by the PAEA. Therefore, I would propose a one-time price increase that raises the Postal Service’s finances to the level needed to ensure stability absent those two factors, while leaving the price cap intact for future rate adjustments.

 In contrast, the changes proposed in this Order essentially constitute a return to the PRA’s cost-of-service rates, but without any of the protections of the PRA framework.

The PRA afforded the Postal Service the ability to recover all its costs through price increases, but accordingly made it forgo pricing flexibility and subjected it to significant regulatory scrutiny. The PAEA freed up the Postal Service’s flexibility to set prices as it sees fit. But, it also simultaneously imposed the constraint of an overall price cap to protect customers.

The changes proposed in this Order would grant the Postal Service the benefits of both systems and require of it the sacrifices of neither.

I am especially troubled by what effect these changes may have if the Postal Service’s finances deteriorate in unforeseen ways. This Order is committed to price  increases that deliver revenues equaling the sum of all the Postal Service’s costs, whatever they may be, with additional revenues to cover long-term capital expenditures. This is a laudable goal. But, if the Postal Service’s costs (particularly its structural costs) increase unexpectedly, the logic of this Order would require ever-increasing prices, even if that would drive away mail volume at a rate that could put the Postal Service out of business.

A second concern I have is the questionable regulatory complexity that this Order seeks to overlay on what has been, until now, a straightforward and pragmatic ratemaking system. For example, tying 0.75 percent of pricing authority to Commission approved efficiency and 0.25 percent of pricing authority to Commission-approved service performance creates unnecessary regulatory hurdles. 

Of course, we must go through a formal process seeking public input in order to replace the current system and this proposal is no more than a starting point. All the Commissioners agree that some change is needed to the ratemaking system. But, we disagree on the exact changes that would be most prudent. I look forward to comments on how to craft a balanced change, one that provides the Postal Service with a fair level of additional revenue while continuing to ensure that all of the objectives of 39 U.S.C. 3622 are met. In this regard, I note that the exigent surcharges that were in effect from 2014 to 2016 appeared not to result in any significant volume loss. Therefore, they may serve as a useful starting point for analyses.

I am hopeful that, with the input of all stakeholders, the Commission can arrive at a balanced resolution to this review process.

Tony Hammond

3. A U.S. Court of Appeals ruling is likely

Finally, everyone involved seems to agree that one or more parties is likely to appeal any PRC decision in federal court. So, the process of deciding the future pricing regulation of USPS is likely to stretch on and on.

A very unfortunate reality for all Postal Service customers is that uncertainty will continue indefinitely, and the USPS will litigate and advocate against its customers as far as the eye can see. In case you’re not already aware, the Postal Service, as a government monopoly with declining volume, does not treat its major customers any way like their other suppliers do.