P O S T A L
R E G U L A T O R Y
C O M M I S S I O N
Association of Alternate Postal
Systems
Regulatory Update
Alex Cooper
Special Assistant to
Commissioner Mark D. Acton
May 5, 2015
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Contents
The Postal Regulatory Commission
PRC Duties
Compliance Matters
Ratemaking
Requests for Proposal (RFPs)
International Role
Legislative Update
Questions & Answers
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The Postal Regulatory Commission
Mission Statement: Ensure transparency and accountability of the
United States Postal Service and foster a vital and efficient universal
mail system
Present Composition
• 5 Commissioners, appointed by the President and confirmed by the
U.S. Senate—this is the full complement
• Office of Accountability and Compliance – Technical Analysis
• Office of the General Counsel - Legal
• Office of the Secretary and Administration
• Office of Public Affairs and Government Relations
• Office of the Inspector General
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PRC Duties
• Ensure the Postal Service complies with the law and
applicable regulations
• Provide the public with transparency and
accountability of the United States Postal Service
• Provide Advisory Opinions, which offer professional
analytical and legal feedback to the public when USPS
wishes to make a change in the “Nature of Service,”
or its core functions
• Provide views to Secretary of State when new or
amended international Market Dominant rates are
established as to their consistency with U.S.C. § 3622
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Compliance:
Annual Compliance Determination
Annual Compliance Determination
• A report is issued by the Postal Regulatory
Commission (PRC) in response to the Annual
Compliance Report submitted by USPS to the
PRC each fiscal year
• PRC determines whether any price or fee in
effect during the year under review was not in
compliance with applicable provisions and
whether any service standards were not met
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Compliance:
Annual Compliance Determination
Principal Findings for FY 2014 include:
• 26 workshare discounts did not comply with section 3622(e), which
requires the Commission to ensure that workshare discounts do not exceed
the costs avoided by the Postal Service as a result of mailers preparing the
mail.
• Seven noncompensatory Market Dominant products are identified:
Periodicals In-County, Periodicals Outside County, Standard Flats, Standard
Parcels, Media/Library Mail, Inbound Letter Post and Stamp Fulfillment
Services.
• Revenue for two Competitive products failed to cover attributable costs
and therefore do not comply with the law: International Money Transfer
Service – Inbound, and International Money Transfer Service – Outbound.
• The Postal Service met its service performance targets for Presorted FirstClass Letters/Postcards (Overnight and 2-Day), while performance results
for Periodicals and Package Services fell short despite initiatives to increase
performance.
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Compliance:
Financial Analysis
• Separated from the ACD for the second
year for greater clarity and transparency
• Includes a more in-depth discussion of
the cost savings the Postal Service has
generated, the financial impact of the
various classes of mail, and a review of its
assets and liabilities
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Compliance:
Financial Analysis
• In FY 2014, the Postal Service had a total net loss of $5.5
billion. This is the Postal Service’s eighth consecutive financial
loss, bringing its total net deficit since FY 2007 to $51.7 billion.
• The total net loss for the year was $10.9 billion less than the
total net loss in FY 2012 and $1 billion better than expected
under the Financial Plan.
• The Postal Service had an operational net income for the first
time since FY 2008.
• Postal Service liquidity is insufficient to significantly improve
operational efficiency.
• Liquid assets (current assets) are insufficient to meet the
payment of current liabilities.
• The Postal Service has no further access to borrowing under
current law.
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Rate Making:
Latest CPI-U Based Price Cap Authority
(This has not been updated since 12/2014)
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Rate Making:
R2013-11 Exigent Rate Case
• On September 26, 2013, the Postal Service filed a
request for an average 4.3% increase above the CPIcap for market dominant products.
• “Exigent” circumstances are defined as “Due to
extraordinary or exceptional circumstances.”
• The Postal Service justified the need for an exigent
rate increase as being the result of the Great
Recession.
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Rate Making:
R2013-11 Exigent Rate Case
• The exigent rate increase is functionally a
surcharge adjustment
• The CPI-based rates and the exigent surcharge, are
by PRC, design separate and distinct
considerations.
• This means any CPI-based rate change in the
future (the next opportunity would be 2015)
would be based on the current CPI rates, not CPI
rate + exigent surcharge.
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Rate Making:
R2013-11 Exigent Rate Case
• The decision by the PRC to grant in part
the Postal Service’s request is being
appealed by both mailers and the Postal
Service.
• Oral arguments in DC Circuit Court of Appeals occurred on
September 9, 2014.
• This case is pending in a court of law, therefore we are
unable to discuss details or opinions on the case.
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Rate Making:
R2013-11 Exigent Rate Case
• There are three possible general outcomes:
– The Postal Service could be found to be correct in asserting that
the exigency should go on forever, and be “baked into” the base
rate, or the Court could make a determination that the exigency
should be allowed to collect more than the $3.2 billion the
Commission determined. USPS is on track to reach that number
around September 2015.
– The Alliance for Nonprofit Mailers et al. could be found to be
correct, in which case the Postal Service would have to return
those exigent revenues.
– The Court could remand our decision back to us for expansion or
clarification, or alternatively they could agree with the
Commission’s original order granting in part the exigent request
from the Postal Service.
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International Role
• The PRC contributes to the work of the Universal Postal Union
(UPU) to develop terminal dues rates for letters, as well as rates
for parcels and supplementary services. Commission staff also
participate in work on broader regulatory issues.
• For Market Dominant products, the Commissions seeks to
promote compliance with § 3622.
• For Competitive products, the Commission seeks to promote a
level playing field between the Postal Service and the private
sector.
• The PRC is working as part of the U.S. delegation to the UPU to
finalize proposals on international rates and other issues for
adoption at the September 2016 UPU Congress in Istanbul.
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Terminal Dues Study
• Terminal dues are the rates that postal operators pay to each other
for the delivery of letter mail. In the UPU, many national postal
operators receive terminal dues that are below cost. Therefore,
foreign mailers are accessing domestic delivery markets at lower
rates than domestic mailers, with domestic mailers subsidizing
foreign mailers.
• In 2014, the PRC commissioned Copenhagen Economics to study,
from the perspective of economic theory, whether the UPU
terminal dues system distorts competition and to determine how to
measure any such distortions.
• Copenhagen Economics found that a system of terminal dues that
are below cost for national postal operators does create market
distortions, and proposed that an ideal terminal dues system should
be based on the average incremental cost of last-mile delivery.
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Legislative Update
• As of yet, no major postal legislation has been introduced by the
Chairman or Ranking Member of either the House or Senate
postal oversight committees
– Both Committees have new Chairmen—in the House, Rep. Jason Chaffetz,
and in the Senate, Sen. Ron Johnson.
• Senate Homeland Security and Governmental Affairs Committee
Ranking Member, Sen. Tom Carper, hosted a postal briefing for
committee members on April 16, in which the PRC participated,
which dealt with USPS finances.
• The PRC has been invited to participate in a second briefing later
this month to discuss issues related to rural delivery
• The Postal Service had its first operational profit since 2008,
which may impact the chances of significant legislation as the
circumstances surrounding USPS may seem less dire.
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QUESTIONS?
WWW.PRC.GOV
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