Postal Commission Denies USPS Exigent Rate Increase Request
September 30, 2010
The Postal Regulatory Commission today issued Order No. 547 in Docket R2010-4 denying a U.S. Postal Service request for an average 5.6 percent rate increase. The commission unanimously found that the Postal Service failed to justify rate increases in excess of its statutory CPI (Consumer Price Index) price cap.
“The commission finds that the Postal Service has shown the recent recession to be an exigent circumstance but it has failed both to quantify the impact of the recession on its finances and to show how its rate request relates to the resulting loss of mail volume; therefore, we unanimously deny its exigent rate request,” said Chairman Ruth Y. Goldway.
The law requires the Postal Service to demonstrate that any exigent rate adjustments are due to the identified exceptional circumstances. This prevents a bona fide extraordinary or exceptional circumstance from being used as a general rate increase mechanism that would circumvent the price cap system.
The Postal Service’s recent volume losses and multi-billion dollar shortfalls are recognized. However, commission analysis confirms that the Postal Service’s cash flow problem is not a result of the recession and would have occurred whether or not the recession took place. It is the result of other, unrelated structural problems and the proposed exigent rate adjustments would neither solve nor delay those problems.
The Postal Service may be unable to continue to meet a statutory 1O-year payment schedule—averaging roughly $5.5 billion per year—to create a fund to pay future retiree health benefit premiums. It has been unable to fund this obligation from operations, and has instead used up all of its retained earnings and drawn down from its $15 billion borrowing authority. Even with the requested increase, the Postal Service would be unable to meet this annual obligation either in 2011, or in succeeding years.
The Postal Service achieved over $6 billion in cost reductions in 2009. While volume declines outstripped cost reductions during the actual recession, Postal Service cost containment programs are producing results and work hours have declined faster than volumes in 2010.
Chairman Ruth Y. Goldway explained the commissions' decision in the following statement:
This is the first request for an exigent rate increase the Postal Regulatory Commission has considered. From the moment the Service announced its intention to file on March 2nd, 2010, my fellow Commissioners and I have been aware that this process is unprecedented and whatever decision we make will be controversial.
From the outset, we devoted ourselves to a careful study of the law. The Commission and our staff have worked to determine the law’s intent, to clearly understand its provisions and to define our responsibilities in order to apply it fairly. Notwithstanding the complexity and difficulty of the issues before us, the Commissioners’ deliberations have been collegial. The decision we have come to is a consensus and is unanimous. We concluded we must deny the request.
The Price Cap is the centerpiece of the law; it had strong bipartisan support when enacted. The Cap was seen as essential for promoting efficiency and creating an environment of rate stability that would encourage mailers to stay in the mail and use it more, while providing the Postal Service with incentives to reduce its costs.
The Exigent rate provision is a carefully crafted exception to the Price Cap. Congress made the terms for the exception very narrow. To be valid, an exigent rate adjustment must be shown to be:
- Due to either extraordinary or
- Reasonable, equitable, and necessary
under best practices of honest, efficient, and economical management; and,
- Necessary to maintain and continue the
development of postal services of the kind and quality adapted to the needs of
the United States.
All of these three provisions must be met.
The Commission responded to the Postal Service’s July 6th request by initiating an expedited review process to last no more than ninety days. The Commission heard the Postal Service testimony and evidence that identified exigent circumstances and requested rate relief. A wide variety of parties submitted extensive arguments that were very helpful to the development of the record. In addition, the Commission received and reviewed more than 500 public comments.
The Postal Service has asked the Commission to find that volume declines resulting from the recent recession are an extraordinary or exceptional circumstance. The Postal Service also supported its request with a statement from its Chief Financial Officer that it is facing a cash flow crisis, and that without some assistance it will be unable to make Congressionally-required payments in September and October of 2011.
The documentation provided by the Postal Service demonstrated that the primary cause of the liquidity crisis was structural and related to an overly ambitious requirement for the Postal Service to prefund its future retiree health benefit premiums.
After careful consideration, the Commission agreed with the Postal Service that the recent severe recession, and the decline in mail volume experienced during the recession, do qualify as an extraordinary or exceptional circumstance under the law. However, the Commission finds that the requested exigent rate adjustments are not due to the recent recession, or its impact on mail volume. Rather, they represent an attempt to address long-term structural problems not caused by the recent recession. The Commission finds, therefore, that the Postal Service has failed to meet its burden under the law and the Commission is unanimous in denying its request for an exigent rate increase.
About The Postal Regulatory Commission
The Postal Regulatory Commission is an independent federal agency that provides regulatory oversight over the U.S. Postal Service to ensure the transparency and accountability of the Postal Service and foster a vital and efficient universal mail system. The Commission is comprised of five Presidentially-appointed and Senate-confirmed Commissioners, each serving terms of six years. The Chairman is designated by the President. in addition to Chairman Goldway, the other Commissioners are Vice Chairman Tony Hammond, Dan Blair, Nanci Langley, and Mark Acton.