Dear SMC Members:

On December 20, 2016, the Postal Regulatory Commission (PRC) announced that it would begin its review of the system for regulating rates and classes for Market Dominant products that was established in the 2006 law that governs today’s Postal Service and rate making system. The Postal Accountability and Enhancement Act (PAEA) provided a system of setting postal rates tied to changes in the annual Consumer Price Index and provided that at the end of ten years the PRC would do a review of how the rate-setting process was working to achieve the objectives of the law. The PRC Order, entitled “Advance Notice of Proposed Rulemaking on the Statutory Review of the System for Regulating Rates and Classes for Market Dominant Products”, could be just the beginning of a long process to review and evaluate how the current system is working. If the PRC finds the objectives of the PAEA Statute are not being met, it could establish another proceeding to modify the system, or adopt an alternative system, to achieve the objectives of the law.

The PRC Order stated it would examine “all aspects” of the rate-making system under current law including but not limited to:

– The annual limitation on the percentage change in rates,
– The schedule for rate changes,
– 45 day notice before the implementation of rate adjustments,
– Expedited rate changes due to extraordinary of exceptional circumstances,
– Class level application of the annual limitation,
– The rounding of rates and fees,
– The use of unused rate authority,
– Work sharing discounts,

The Commission Order provides that stakeholder comments are due by March 20, 2017. In addition to soliciting comments on how the current system is meeting the objectives under the law, the Commission invited commentors to suggest modifications that should be made to the system, or propose any alternative system that should be adopted to achieve the objectives of the law. This invitation for ideas about changes or a “future” or “different” system, was a surprise to some postal watchers that had not anticipated this invitation for new ideas and proposals in the initial rate review proceeding. Once comments are submitted, in March, 2017, there will be no opportunity for a reply or comment on the submissions or suggestions of other parties. The Commission’s opinion is expected sometime in the fall and, as noted, this could start another round of rule making proceedings with its own initial comment, and likely reply comment, periods that are customary in formal rule making proceedings.

To assist postal stakeholders in submitting comments that would help the Commission focus on the objectives of the law, the Commission Order listed the nine objectives of rate making under the 2006 law and provided a preliminary definition for each objective, as well as potential methods for measuring whether the objectives were being achieved. The Commission Order invites participants to comment on the definition and the metrics for measurement if commentors have different views or alternative metrics to suggest. The Commission also opened the door to commentors to suggest if the Commission’s Order and “proposed framework is not appropriate for the review” or to suggest a different or better framework to be used for the review and how to measure the achievement of the objectives in the alternative framework”. It is anticipated that most stakeholders will not quibble with or challenge the Commission’s framework for the proceeding, but will be exploring ways that individual stakeholders, and perhaps industry coalitions, could work together to submit comments.

The nine objectives established in PAEA, and subject to the rate making review, are as follows:

– To maximize incentives to reduce cost and increase efficiency.
– To create predictability and stability in rates.
– To maintain high quality service standards established under Section 3691.
– To allow the Postal Service placing flexibility.
– To assure adequate revenues, including retained earnings, to maintain financial stability.
– To reduce the administrative burden and increase the transparency of the rate making process.
– To enhance mail security and deter terrorism.
– 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.
– To allocate the total institutional costs of the Postal Service appropriately between market dominant and competitive products.

Significantly, the PRC has also a separate proceeding pending before it to consider whether the current share of institutional costs, 5.5%, allocated to competitive products is sufficient or should be changed.

The Postal Service has made no secret of its goals to seek relief from the CPI rate cap and to argue that the current system is working for the USPS to meet its financial needs in terms of adequate revenues, and building revenues to make capital improvements and maintain financial stability. Undoubtedly, the Service will seek much greater pricing flexibility including the potential of an increase in the current rate base and freedom from the constraints of the CPI rate cap.

SMC, and other mailer associations have applauded the CPI rate cap as finally providing mailers, and other stakeholders, with some assurance of predictability and stability and protecting the investment in mail programs, and market expansion or frequency, that has been done by SMC members over the past 10 years.
SMC will be participating with other mailer associations, as well as through our membership in PostCom, in the rate review proceeding.

Questions? Contact: Donna E. Hanbery, Executive Director | Saturation Mailers Coalition
33 South Sixth Street, Suite 4160, Minneapolis, MN 55402
(612) 340-9350 Direct Line
(612) 340-9446 Fax